07.01.2013

The Ministry of Finance attained a new minimum of the yield on the 10.5-year benchmark government securities (GS). At the first for 2013 auction held on 7 January the yield recorded on the newly issued bond with maturity July 2023 is 3.43%. The demand of participants was strong. The orders exceeded BGN 177 million, while the amount offered and approved for sale was BGN 50 million, or 3.54 coverage coefficient. For comparison, last year the yield on the 10.5-year GS issued in 2012 dropped from 5.35% in January to 3.45% at the last for it auction in November. The bond is a priority for Bulgaria as its yield on the secondary market this year will be used by the ECB for calculating the harmonized long term interest rate in order to assess the level of convergence (Maastricht criterion).

The yield registered at the auction is under the current one on the sovereign 10-year bonds of a number of EU Member States and countries from the region - Poland (3.89%), Italy (4.30%), Croatia (4.57%), Spain (5.05%), Slovenia (5.18%), Hungary (6.07%), Romania (6.40%) and Turkey (6.89%). The spread to the non-risk German Bunds continues to drop and is 191 b.p. The distribution of the amount of securities bought among investors is widely diversified: banks - 45%, insurance companies - 22.5%, investment intermediaries and contractual funds - 14,6%, pension funds - 13.5%, others - 4.4%.

The outcome of the first for this issue year auction for the sale of GS confirms the status of Bulgaria as a budgetary disciplined state and low risk issuer of sovereign debt. The positive trends in the budget consolidation and the government debt management allow financing at an optimum for the state price which lowers government debt service costs.