Investors "push" bond yields down - Overdemand at auction lowers yields, while safety remains a priority for the market
Currently, the returns from investing in 12-month treasury bills are very low. In the last auction, the weighted average yield fell to 2.48%, below the base interest rate, while in the auction held a few weeks ago, the yield was slightly higher, at 2.53%.
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.
Keeping the base interest rate at 2.50% has had its impact on the further decline in the yield of 12-month bonds. Thus, the average interest rate for 12-month bonds has fallen well below 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 represents the annual return that an investor realizes from holding a financial instrument until maturity. In the case of 12-month treasury bills, this return is realized from the difference between the purchase price and the nominal value at maturity.
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