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Serbia launches new dinar bond issue amid market expectations and public debt concerns

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The Serbian government is once again testing the market with a new dinar bond issue. The last time it did so was in February of the previous year when it sold the final batch of eight-year “EXPO” bonds worth a total of 150 billion dinars, which had been issued in October 2023.

During that issue, the yield rate was set at 6.12 percent with an annual coupon rate of 7 percent. Today, the government will offer a new bond issue valued at 120 billion dinars, with a coupon rate of 5.25 percent and a maturity period of 10 and a half years. Experts we spoke with predict strong demand for the bonds, with the offering likely to be fully subscribed. However, they caution that every new issuance contributes to an increase in public debt.

Zoran Grubišić, Dean of the Belgrade Banking Academy, is confident that large investors, the target audience for this issuance, will seize the opportunity to purchase the bonds. “I believe that big investors will not miss the chance to buy these bonds and that they will be quickly bought up,” Grubišić told Biznis.rs.

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According to him, the global trend of falling interest rates works in favor of buyers of government securities. “Since these bonds have a maturity of 10 and a half years with a fixed coupon rate, their market value will increase when interest rates fall. Investors will then sell them after collecting several coupon payments,” he explained, adding that this makes the bonds an attractive option for many potential buyers.

Nikola Stakić, a professor at the Faculty of Business at Singidunum University, also expects the offering to be successful, thanks to the attractive coupon rate. “Based on recent secondary market data, it’s likely that the bonds will reach a premium price, as the yield on bonds with similar maturities will most likely be lower than the coupon rate,” Stakić explained. “If demand exceeds supply significantly, we could see a correction of the terms of the issue, potentially lowering the coupon rate, as this is a fixed obligation for the borrower.”

However, Stakić expressed concern over the structure of Serbia’s public debt, particularly the significant portion of debt in dinars, which is concentrated at the longer end of the yield curve. “This creates increased pressure on public debt, especially from 2030 onwards,” he said. “This issue applies not only to dinar-denominated securities but also to Eurobonds. Clearly, borrowing in local currency is preferable to mitigate currency risk.”

When asked whether this new 120 billion dinar bond issuance is a better deal for the government to borrow more favorably or for investors to profit from Serbia’s debt securities, Professor Grubišić emphasized that both sides can benefit. “It is always valuable for a country to test the market to determine under what conditions it can borrow—whether it’s for 5, 7, 10 years, or even longer. These kinds of issuances provide the government with a clear view of interest rates and the premium it must pay for risk and maturity,” he said.

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It is also worth recalling that in late December, when the government announced the decision to issue these dinar benchmark bonds, we spoke with Đorđe Đukić, a professor at the Faculty of Economics in Belgrade, about how this bond issue represents the first test of Serbia’s new investment-grade credit rating. Đukić remarked that Serbia’s improved credit rating did not significantly impact the price or offer for this bond issuance.

“The last 10-year dinar bond issue, in July 2023, was sold at a yield rate of 5.25 percent, and this upcoming issue is also being offered with the same coupon rate. This is somewhat surprising—if Serbia had achieved an investment-grade rating, the bond offer should, in theory, be priced lower than it was before the country obtained the rating,” Đukić noted in an interview with Biznis.rs.

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