04.10.2011

The Ministry of Finance has realized successfully a benchmark issue of 10.5 year GS of weighted average annual yield of 5.28% at the auction held on 3 October. This is the lowest yield for the six auctions held thus far for this issue since its circulation on 17 January 2011 at a peak of 5.49%. Thus, the positive trend of yield reduction with long-term bonds is preserved after the reported reduction in the yield of medium-term GS. Investor demand has doubled the supply at a coverage ratio of 1.91. The aggregate nominal value of requested orders from primery dealers in GS amounts to almost BGN 106 million, with a volume of BGN 55 million offered for sale.

After this successful auction the volume of the issue of priority for Bulgaria totals BGN 257.9 million. The parameters of the issue reinforce its status of a benchmark bond and spur its liquidity on the secondary market. The yield of this issue is the basis for calculation of the harmonized long-term interest rate for evaluation of the convergence rate (one of the Maastricht criteria). The yield of this auction is lower than the indicator for Bulgaria in the latest harmonized long-term interest rate published by the European Central Bank for August 2011 г., i.e. 5.32%. Just for comparison, this indicator for other Eastern European countries is as follows: Poland - 5.70%, Hungary - 7.49%, Romania - 7.38%, Latvia - 5.60%.

As expected, there has been great interest from banks and other institutional investors in this long-term maturity segment. Allocation of the approved volume of GS by type of investor shows that the banks have the greatest share of GS acquired at the auction (50%), followed by pension funds (44%) and insurance companies (5%).

Against the background of mounting sovereign debt crisis in European countries, Bulgaria has maintained its fiscal consolidation and has managed to reduce the cost of market oriented financing. The lower yield of domestic government debt contains the interest rate levels in the country and influences the economic activity favourably. Not allowing the increase in the cost of budget financing allows for preserving the low tax burden and reducing the costs for government debt servicing in the medium and long run.

The Ministry of Finance esteems highly the investor confidence and will continue to pursue its policy of spurring on the development of the domestic GS market driven by its understanding of its priority importance.