15-year auction draws huge interest
Provident Funds, insurance companies and banks rushed to lock their money at attractive yields offered during the Monday government multiple-bond auctions with the 15-year bond auction stealing the show as it attracted most of the interest.
The satisfactory over-subscription witnessed during the bond auctions coupled with declining volume in the stock market confirms that local institutional investors like provident funds, insurance companies and the banks prefer the safety and secure yield offered by bonds, rather than the uncertainty of the stock market, rocked by scandals.
During the multiple bond auctions held by the Central Bank on behalf of the Finance Ministry on April 18, the main point of attraction was the debut of the 15-year bond.
The Central Bank auctioned a total of CYP 50 mln bonds maturing in 15-years with a coupon of 6.10%, which attracted a total of CYP 130.71 mln in bids, of which CYP 50 mln were satisfied at an average yield of 6.17%. The last time the CB auctioned 15-year bonds in June 2004, the yield was 7.05% but then interest rates were substantially higher from current levels.
Analysts told the Financial Mirror that Cyprus is following the trend among major euro-zone members of offering longer-dated paper, with several euro-zone countries, including Greece, issuing 30-year bond to help meet demand from provident funds seeking long-dates assets.
The recent EAC Provident Fund scandal with Suphire, which cut short the spectacular performance of the CSE, and the growing liability faced by many pension funds, including those of the three largest banks as well as semi-governmental organisations, has forced many funds to look more closely at aligning their liabilities with longer-dated paper.
Banks and to a lesser extent insurance companies who plan to offer mutual funds in future are also rushing to lock in at yields above 6% so that in turn they may attract interest from the public.
CONVERGENCE
Last but not least is the general belief that with Cyprus’s entry into the ERM2 a foregone conclusion, local interest rates will converge lower towards the euro-zone rates.
During the 10-year auction, for the 6% bond for which the Central Bank was asking for CYP 60 mln bids, the total amount of submitted bids reached CYP 39.8 mln, of which CYP 34.75 mln were accepted at an average yield of 5.84%, down from 5.89% agreed at the auction held on February 24 and 6.07% on January 19.
Although it is clear that local bond yields are steadily declining, but they are simply following the global trend and have further room to decline since they remain several points above comparable 10-year yields prevailing abroad.
According to Financial Mirror data, the comparable 10-year German Bund yield was last at 3.45%, the US yield was at 4.26%, that of the UK at 4.57%, while the 10-year yield in Japan was the lowest at 1.26%.
MORE DECLINES
During the auction for the 5% two year bond for which the CB called for bids up to CYP 20 mln, the total bids submitted amounted to CYP 12.49 mln, all of which were accepted at an average yield of 5.04%, down from 5.16% agreed at the February 24 auction.
During the auction for the 5.75% five year bond for which the CB called for bids up to CYP 70 mln, the total bids submitted amounted to CYP 45.87 mln, of which CYP 45.16 mln were accepted at an average yield of 5.87%, down from 5.97% agreed at the February 24 auction and 6.01% on January 19.
During the auction of up to CYP 30 mln Treasury Bills 13 weeks maturity the total value of the bids submitted was CYP 30 mln. All the bids submitted were accepted at an average yield of 4.28%.
