10-year T-bill yield breaks be­low 4%, new four-year low

Financial Mirror (Cyprus) - - FRONT PAGE -

The yield on 10-year Cyprus sovereign bonds dropped to 3.97% on Tues­day, down from 4.11% on Mon­day and 4.15% on Fri­day, the low­est level in al­most four years.

This is near the bond’s all-time low of 3.81% recorded in Oc­to­ber 2010.

The av­er­age yield on the Cypriot bonds av­er­aged at 5.15% in the past twelve months, ac­cord­ing to Bloomberg data. On March 3, 2014, the yield on the sec­ondary mar­ket was al­most 6.31%.

Gov­ern­ment sources at­trib­uted the decline to the start this week of the ECB’s 1.14 trln euro quan­ti­ta­tive eas­ing (QE) and bond pur­chas­ing pro­gramme.

How­ever an­a­lysts be­lieve this ex­cuse may be far fetched as Cyprus will not be able to take ad­van­tage of the ECB’s money-print­ing un­til par­lia­ment passes a long-over­due bill on fore­clo­sures and banks start to re­cover their bad loans, last es­ti­mated at 50% of the en­tire is­land’s loan­book.

The yield on the 10-year Trea­sury bills is­sued in 2010 de­clined by 18 ba­sis points on Tues­day to 3.97% hav­ing dropped 48 ba­sis points to 4.15% on Fri­day, fol­low­ing the 4.50% high on Septem­ber 8 last year.

The yield of the 5-year bond (ma­tures in 2019) also de­clined, to 3.94% on Tues­day hav­ing re­ceded to 4.07% on Fri­day.

Cyprus aims to see bond pur­chases of about EUR 500 mln from the ECB’s QE pro­gramme, but can­not par­tic­i­pate in the scheme un­til it gets the all-clear from the fifth pro­gramme re­view, prob­a­bly in April.

This is why Fi­nance Min­is­ter Haris Ge­or­giades has been overly con­fi­dent that Cyprus will be able to re­turn to the mar­kets some time in 2015, with rat­ing agen­cies wait­ing to see if Cyprus will com­ply with its 10 bln euro bailout pro­gramme by stick­ing to a fis­cal pro­gramme and keep­ing up with the re­form plan that in­cludes pri­vatis­ing mo­nop­o­lies or sell­ing gov­ern­ment-owned as­sets to some EUR 1.4 bln by 2018.

Ge­or­giades said in Jan­uary that Cyprus may is­sue new debt twice this year.

Last week, the Min­is­ter told Reuters in an in­ter­view that Cyprus hopes to bor­row on fi­nan­cial mar­kets this year, say­ing the is­land’s econ­omy had more in com­mon with bailout turn­around Ire­land than Greece.

Ge­or­giades said Ire­land, which re­formed af­ter near bank­ruptcy, was a role model as Cyprus climbs out of re­ces­sion and pre­pares to bor­row on mar­kets ahead of the end of its re­form-for-aid pro­gramme in the mid­dle of next year.

The Euro­pean Cen­tral Bank’s QE pro­gramme, un­der which it will print money to buy mostly gov­ern­ment bonds, is not yet open to Cyprus as it has failed to im­ple­ment a new law on fore­clo­sures and in­sol­vency that would make it eas­ier to for the banks to re­pos­sess prop­er­ties and lower their high­risk port­fo­lio of non-per­form­ing loans (NPLs).

Ge­or­giades said that Ni­cosia hoped to sell one or two new bonds this year, and pre­dicted mod­est eco­nomic growth.

He also said he may not need close to EUR 2 bln of bailout cash that was ear­marked for re­cap­i­tal­is­ing banks and other spend­ing. That money, he said, could be used to re­pay debts in­stead. state raise

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