TIRANA, May 29 – Government security yields have been on a downward trend in the first five months of this year fuelled by ample liquidity by commercial banks amid sluggish lending and increased interest to invest due to much more favorable return rates compared to traditional bank deposits.
Bank of Albania data shows yields on 12-month T-bills, the government’s key instrument for internal borrowing, dropped to a five-month low of 2.23 percent in the latest May auction, down from 2.77 in late December 2017.
T-bill yields hit a historic low of 1.24 percent in mid-2016 soon after the central bank cut the key rate to all-time low of 1.25 percent before climbing to 3.22 percent in late December 2016.
Meanwhile, yields on 2-year notes, the government’s key instrument for long-term debt in the domestic market, slightly dropped to 2.9 percent in last week’s auction, down from 3.25 percent in late December 2017.
Yields on 2-year notes have been on an upward trend after hitting a historic low of 1.5 percent in mid-2016.
In a bid to extend the maturity of the country’s internal public debt, the Albanian government has held two auctions this year, selling 13.5 billion lek (€106 mln) in five-year bonds.
More than a third of Albania’s domestic debt is short-term, mainly in 12-month T-bills, placing the government at funding pressure and debt roll-over risk.
In its newly approved 2018-2020 mid-term debt management strategy, the government says a priority will be given to long-term debt at fixed interest rates in the next three years.
Albania’s public debt hit a four-year low of 70 percent of the GDP in 2017, a high level for the country’s stage of development, and plans to bring it to 60 percent of the GDP by 2021 seem at risk due to new government arrears that could stem from controversial public private partnerships, the IMF has warned.
Domestic debt accounted for 37 percent of Albania’s GDP at the end of 2017.
Commercial bank held the overwhelming majority of 61 percent of Albania’s domestic debt at the end of 2017, compared with about 15 percent by non-bank financial institutions and another 15 percent by individual investors and 8 percent by the country’s central bank.
Despite the slight decline in yields, investments in government securities remain a much more favourable option compared to traditional bank deposits whose average interest rates for the national currency stand below 1 percent and at almost zero for euro-denominated savings.
The Bank of Albania organizes 3-month and 6-month T-bill auctions every month and 12-month T-bill auctions every two weeks. T-bills are issued and guaranteed by the Ministry of Finance on behalf of the Albanian government.
