CYPRUS: Borrowing cost drops as bond yields dip below 2%

The cost of borrowing for the Cyprus government dipped below the 2% mark on Friday, with the 10-year bonds trading with a coupon of 1.97%, a good 40 basis points below the nominal interest rate of the bond issued last September when Cyprus was removed from ‘junk’ investment grade by Standard and Poor’s.

The Cyprus News Agency said that the 10-year bond had already marked a steady reduction of 14 basis points during the final week of January.

Last September, Cyprus issued a 10-year euro-denominated bond amounting to €1.5 bln, the largest issued since the 2012 banking crisis and subsequent bailout by the troika of investors – the EU, the ECB and the IMF.

The nominal interest rate and the buyback yield last September amounted to 2.375% and 2.40%, respectively.

By comparison, the 10-year bond issued by Greece that has just returned to the markets was trading at 3.88% last Friday, Italy’s bond was at 2.74%, Portugal’s at 1.63%, Spain’s 1.22%, Ireland’s 0.88%, France 0.57% and Germany’s 0.16%.

Meanwhile, the yield — the amount of return an investor realises on a bond — of Cyprus 5-year bonds maturing in 2024 is at 1% and the bond maturing in 2025 is trading at 1.39%.

Cypriot bond yields fell sharply last September after S&P upgraded the island’s sovereign bond to investment grade, more than six years after it had been downgraded into ‘junk’ territory.

S&P lifted Cyprus’s rating to BBB- from BB+, citing brighter growth prospects and consolidation in the banking sector. The investment-grade rating made Cyprus eligible for ECB bond purchases, Reuters reported at the time.

To qualify for the ECB’s ‘quantitative easing’ stimulus programme, at least one investment grade rating was needed from S&P, Moody’s, Fitch or DBRS.