Retail bond sales plummet after rate cut
The monthly issue of 6-year retail bonds, the government’s alternative financing method after the economy crashed two years ago, plunged to their lowest level after the government announced a disincentive of a lower interest rate starting from the September series.
The Public Debt Management Office of the Ministry of Finance said that the ninth series attracted a cumbersome 52 bids for just EUR 3.8 mln, a far cry from the August issue of EUR 30 mln and EUR 31 mln the month before. The bids ranged from EUR 1,500 to EUR 400,000 and all offers were from Cypriot nationals, as opposed to previous issues that attracted non-EU foreign investors, keen to pump in at least EUR 300,000 to secure a residence permit or about EUR 3 mln to qualify for citizenship.
The reason for the drop was the reduction in the average 6-year yield to 2.79%, down from the 4% average at the launch of the programme.
However, the PDMO tried to give a spin to the announcement by saying that the programme was successful and had raised EUR 154.4 mln so far this year, above the annual target of EUR 120 mln based on the anticipated monthly issue of EUR 10 mln.
Bids for the tenth series for October will open from September 1 to 18 and will be issued on October 2.
The retail bond offer, that is restricted to individuals and supposed to have a monthly cap of EUR 10 mln, with the aim of raising EUR 100-120 mln a year, has to date raised EUR 215 mln for the government that has only this year returned to the markets following an austere bailout programme imposed the Troika of international lenders in 2013.
The interest rate for the 2015 series had been adjusted downwards by 0.25 percentage points and ranged from 2.50% for the first year to 5.50% in the final year. These are subject to 3% tax on interest, far more attractive than the 30% tax imposed on bank deposit interest.
In May, the PDMO said it was lowering the interest rate on future bonds starting from the September series, to 2.5% for the first 24 months, 2.75% for 24-48 months, 3.00% for 4860 months and 3.25% for 60-70 months.
The annual coupon rate when the series was first launched in May 2014 started from 2.75% and averaged at an attractive 4% over a six-year period.