25.10.2011

The Ministry of Finance continued the series of active government debt management operations performed since the beginning of the year with the switch auction (buying-back of government securities without a specific term and their replacement with GS from another issue) held for the first time yesterday, 24 October. The objective of the auction is to smooth the repayment profile of government debt payments at the beginning of 2012.

Subject to the buy-back (the source bond) was an issue with original maturity of 5 years and residual maturity as of the date of the transaction of 3 months (the maturity date being 24.01.2012); the settlement bond was a seven-year one issued on 17.02.2010 (the maturity date being 17.02.2017) with residual maturity as of the date of the transaction of 5 years and 4 months. The nominal value of orders requested and approved, respectively, was around BGN 25,2 million and after the auction the volume of the issue exceeded BGN 250 million.. The buy-back prices offered at the auction are lower than the market quotations for that issue, the average weighted price per BGN 100 nominal value under issue 300/2007 being BGN 100,57, with 1,69% yield.

The price at which market participants acquired issue 401/2010 was fixed in advance at BGN 100,75 per BGN 100 nominal value, with 4,39% yield. The spread realized under the seven-year issue used for the replacement, as compared to the German federal bonds with similar residual maturity, shows a decrease compared to the previous reopenings of this bond issue. This is one of the lowest spreads in this maturity segment registered so far.

Participants in the first for Bulgaria auction for GS replacement without any cash flow movement were primary dealers with traditionally strong presence on the domestic debt market. The Ministry of Finance renders an account of market participants' interest in such transactions for investment portfolios' management and intends in future, too, to continue offering new methods and instruments in the area of domestic debt management.

The transaction of buy-back through replacement has a positive effect on budget expenditure in 2011. The results from the transaction are an indicator of the higher interest of Bulgarian government debt holders in the new for Bulgaria techniques and instruments offered on the GS market by the MoF; and encourage the seeking of new options and appropriate investment alternatives on the domestic market.

The decision of the Ministry of Finance to conduct that transaction complies with its objectives to obtain a smooth profile of debt repayments and to reduce the risk of refinancing the sovereign portfolio of liabilities without increasing the amount of the government debt.