Cyprus 10-yr bond yield nears 4%

The yield on the 10-year Cyprus government bond fell slightly to 4.03% during the auction held on May 31, 2006, nearing the psychological 4% level as Cyprus rates continued their slow pace of moving toward comparable euro rates.

The decline in the Cyprus 10-year bond yield from 4.07% on March 29 to 4.03% is still 10bps above comparable German 10-year bund yield of 3.93%, which have recently higher amid expectations that euro borrowing rates will be moving higher soon.

During the auction held on May 31, the Central Bank of Cyprus, acting on behalf of the government offered up to CYP 30 mln bonds with a coupon of 4.5% and maturing in 10 years. The total value of the bids submitted was CYP 36.256.000 from which the government accepted only CYP 10.196.000 at the weighted average price CYP 103,83 per CYP 100 nominal value representing an annual yield of 4.03%.

Strong demand

While demand for the 10-year bond was muted, there was heavy demand for the short dated 2-year bond, which was heavily over-subscribed, as institutional investors rushed to lock in their excess liquidity at a better rate than that fetched through the overnight market.

During the auction for the 2-year bond for up to CYP 30 mln with a coupon of 3.75%, the Central Bank received a total of CYP 116.387.800 in bids of which only CYP 15.5 mln were accepted by the government at the weighted average price of CYP 100,82 per CYP 100 nominal value representing an annual yield of 3.32%, which was near the 3.36% yield agreed at the previous auction held on January 30, 2006.