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Serbia to issue dinar bonds in 2025 and 2026: A guide for potential investors

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The Republic of Serbia plans to issue dinar bonds totaling 120 billion dinars (just over one billion euros) in 2025 and 2026. These bonds will have a maturity of 10 and a half years with a fixed annual interest rate of 5.25 percent, offering semiannual coupon payments.

On January 23, the Ministry of Finance will offer bonds worth 30 billion dinars on the stock exchange. Each bond is priced at 10,000 dinars, allowing even smaller investors to participate. In contrast, bonds issued by NIS in December had a minimum value of 100,000 euros in dinar equivalent.

Advantages and risks of investing in bonds

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Government bonds are often seen as a reliable long-term investment, with the government acting as a secure payer. The bonds offer a fixed 5.25 percent return over their entire term. However, inflation remains a risk that could erode the yield if it rises uncontrollably. Additionally, if the dinar is devalued, bondholders could face losses.

Compared to deposits in foreign currency, which generally offer lower interest rates, bonds can offer higher returns, though this potential comes with the risk of inflation or currency devaluation. A key advantage of bonds is that they can be traded freely on the stock exchange, offering flexibility. Investors can sell their bonds at any time and may either gain or lose capital depending on market conditions.

Unlike bank savings accounts, where interest is typically not paid if the term is broken early, bonds can be sold before maturity for a potential profit. However, capital gains tax applies to government bonds, whereas tax on NIS-issued bonds is higher, reducing the effective yield.

How to buy government bonds

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To purchase government bonds, individuals or legal entities need to open an account with the Central Register of Securities through a broker or a bank with broker authorization. This requires submitting identity documentation (for individuals) or an extract from the business register and the identity card of the founder (for companies). Additionally, an agreement must be signed with the broker, and fees for trading on the stock exchange should be clarified beforehand.

Once the account is open, an additional dedicated account at a commercial bank is required for securities trading. Bonds and other securities cannot be traded through a regular current account. After funding the account, investors can issue a purchase order through the broker, with bonds sold via an auction process. The most favorable offers will secure the purchase.

Historical bond yields

The Serbian government has a history of issuing bonds with varying yields. For instance, a bond issued in September 2023 with a 12-year maturity has a yield of 6.2 percent, while a 10-year bond issued in July 2023 offers 5.25 percent. An 8-year bond issued in March 2024 has a yield of 6 percent.

Given the investment rating Serbia has received, the Ministry of Finance likely expects the yield on upcoming bonds to reflect this improved rating. However, there may be challenges in attracting investors, as bond yields in the US and UK have risen in recent weeks, with 10-year bonds now yielding around 4.8 percent.

Conclusion

Government bonds represent a safe and attractive option for long-term investment, though investors must consider risks such as inflation and currency devaluation. The ability to trade bonds on the stock exchange adds flexibility, but it’s crucial to understand the process of buying and the associated costs. As Serbia continues its bond issuance program, it remains to be seen how successful the upcoming auctions will be in light of global bond market trends.

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