05.06.2012

The yield of the orders approved at the auction held by the Ministry of Finance on 4 June for the sale of 2-year BGN denominated government securities issued on 08.02.2012 with maturity 2014 has reached 2.01%, which is the lowest value ever for that issue. The weighted average of the annual yield for the approved amount of BGN 20 million is at the historically lowest level for an open type of bond offered on the Bulgarian debt market. For comparison, when the bond was issued in February this year the approved yield was 2.36%, and at the next two auctions in March and April - 2.1% and 2.20% respectively. After this successful auction the total amount of the issue reached BGN 110 million.

All GS primary dealers showed great interest in the auction and demand was almost three times higher than the GS amount offered for sale. Banks acquired the biggest share of GS (52.50%), as they traditionally have interest in the shorter end of the medium term debt curve segment.

The auction coincided with the formal announcement by the ECB of its Convergence Report 2012. According to the data and conclusions contained in the document Bulgaria meets the four convergence criteria. In respect of price stability Bulgaria is in a group with Sweden and the Czech Republic where the 12-month average inflation rates were below the reference value. Inflation in the other five countries considered in the Report was well above the reference value.

Over the reference period, six of the eight countries examined (among which Bulgaria) were at or below the 5.8% reference value for the long-term interest rate convergence criterion. In the period April 2011 - March 2012 the long-term interest rate in Bulgaria was on the average 5.3%, i.е. below the 5.8% reference value. Long-term interest rates are calculated on the basis of the 10-year representative government bond yield of each country. According to the Report, long-term interest rates in Bulgaria have been on a downward trend in recent years, edging down to a low of 5.1% at the end of the reference period. Their differential with bond yields in the euro area narrowed significantly throughout this period, as the euro area average long-term interest rate increased at the same time.