12-month bond yield, "in free fall" - The reduction in the base interest rate affected its contraction in the last auction
The average interest rate on 12-month treasury bills has recorded another decline. In this week's auction, the weighted average yield fell to 2.68% from 2.76% at the end of June. Thus, the yield is very close to the base interest rate of 2.50%.
The Bank of Albania's decision to lower the key interest rate to 2.50% from 2.75% previously has its impact on the further decline in the 12-month bond yield, being the lowest since 2022.
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 the requests in the auction reached over 8.9 billion lek. However, the amount received by the Ministry of Finance is lower, only 7.7 billion lek.
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-year Treasury bond refers to the return an investor realizes from an investment 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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