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Anticipating a Fresh 250 Million Euro Bond Issue: Is Borrowing in Dinar a More Favorable Option for the State?

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On Thursday, January 25th, a new issue of state bonds in euros will be available at the auction conducted by the Public Debt Administration. This involves the issuance of three-year bonds with a total value of 250 million euros, set to mature at the end of January 2027.

“It is always better to borrow in the national currency when possible,” says Nenad Gujaničić, Chief Broker at Momentum Securities, who, however, expects that the government will achieve a better price for the new euro-denominated bonds compared to the issuance maturing in May 2027.

The Public Debt Administration has announced in the auction calendar that on January 25th, the entire issue with a total value of 250 million euros will be offered, with a coupon rate of 4.25%, and a nominal value of 1,000 euros per bond.

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Gujaničić expects that the demand for this issuance will be quite strong, and it remains to be seen what yield the government will accept.

“Eurobonds of the state maturing in May 2027, or effectively in less than three and a half years, currently carry a yield of about 4.6-4.7%, and it is certain that the new bonds on the domestic market will offer a lower return. Given the long history of the state’s cheaper borrowing in the domestic market compared to issuances and secondary trading abroad, it could be confidently predicted that the yield will be significantly lower than the mentioned rate,” our source assesses.

The state plans to borrow 45 billion dinars and 250 million euros through bonds in the first quarter of this year.

The first auction of the year was already conducted on January 18, where investors purchased eight-year dinar-denominated EXPO bonds with a total value of 63.15 billion dinars at a yield of 6.15%, meaning the entire issuance was practically sold out after only three auctions.

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Moreover, the yield on EXPO bonds in January was 0.24 percentage points lower compared to October when this issuance was initially offered on the market.

Gujaničić anticipates that demand for this issuance will be quite strong, and it remains to be seen what yield the government will accept.

“State bonds denominated in euros, maturing in May 2027, or practically in less than three and a half years, currently carry a yield of around 4.6-4.7%, and it is certain that the new bonds on the domestic market will yield less. Considering the long history of the state’s cheaper borrowing on the domestic market compared to issuances and secondary trading abroad, it could be freely predicted that the yield will be significantly lower than the mentioned rate,” assesses our interlocutor.

When it comes to the currency structure of Serbia’s public debt, the latest publicly available data is from November 2023.

At that time, the share of public debt in foreign currency was 78.8%, including 58% in euros, 13.4% in dollars, and 6.8% in Special Drawing Rights (SDRs), a form of “IMF currency.” In November, the share of public debt in dinars was 21.2%.

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