Low profit from investing in 12-month bonds - Average interest rate drops to 2.5%, equals that base
Currently, the returns from investing in 12-month treasury bills are very low, as the average interest rate continues to fall. In the last auction, the weighted average yield fell to 2.50%, while in the auction held a few weeks ago, the yield was slightly higher, 2.54%.
Regarding investor demand, the data shows that it was high. In other words, their demand for participation was greater than the amount announced for financing.
Specifically, the amount announced for financing was 7.8 billion lek, while the total value of requests in the auction reached 11.2 billion lek. This over-demand has reduced the yield, because investors are willing to accept lower returns to secure participation in safe instruments.
The Bank of Albania's decision to lower the base interest rate to 2.50% from 2.75% previously has had its impact on the further decline in the 12-month bond yield, being the lowest since 2022. Thus, the average interest rate for 12-month bonds has equaled the base interest rate.
The low interest rate on bonds also means cheaper costs for loans in lek, which affects the expansion of bank lending. On the other hand, the government can finance domestic debt at a cheaper cost.
Yield is the annual interest that the bondholder will receive over its term to maturity. The yield on a 12-month Treasury bond refers to the return an investor realizes from investing in such an instrument. The yield matches the bond's coupon rate when it is issued, although the yield often changes while the bonds are outstanding. The current yield is the bond's coupon rate divided by its market price.
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