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Will the last auction of government bonds this year succeed?

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On Tuesday, December 5th, investors will be offered this year’s second tranche of “expo bonds”, which will also be the last borrowing by the state through the auction of the Public Debt Administration in 2023.

The question is, however, whether the interest of investors will push the demand for this paper, which at the previous auction was as much as five times higher than the planned sales volume.

“Expo bonds” are the smallest government debt securities on offer, and they were issued after the Government of Serbia decided on September 28th to obtain part of the money for financing projects in preparation for the EXPO 27 exhibition.

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The first auction of “expo bonds” with a maturity of eight years, held on October 24th, provided almost three times more money for the budget than planned – instead of the planned seven billion, EUR 163 million were collected, with “noticeable participation of foreign investors”, as was stated in the announcement of the Public Debt Administration.

The main broker of Momentum Securities, Nenad Gujaničić, assesses in an interview that the state did well in the previous auction.

“These eight-year bonds carried a yield of 6.39 percent, which is similar to the yield on Eurobonds on the foreign market, and this in itself shows that the state has done a good job.” In fact, the buyers of these bonds bet that the stability of the dinar exchange rate, which lasts five or six years, will be maintained at least until 2031, which is a rather optimistic attitude and largely based on its stability in the recent past,” explains Gujaničić.

“At best, 20 to 30 investors regularly participate in the auctions, but it is certain that after the good outcome of the first auction, the state will not draw the line above the achieved yield,” says our interlocutor.
He does not expect that the last offer of bonds in 2023 will attract more interest from citizens, given that the main players in such auctions are professionals.

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“Our debt market is completely dominated by the domestic banking sector with its clients who are mostly foreign funds, and that is not the specifics of this auction alone. Domestic legal entities, and especially natural persons, are only ikebana on the domestic primary market, and this is a consequence of the generally weak domestic financial market, especially the secondary market, and the low financial literacy of the population,” Gujaničić said.

At the same time, hedging was done, so bonds with a maturity of five years were issued in the amount of 750 million dollars at a coupon rate of 6.25 percent and the final interest rate in euros, which, after the realization of the hedging transaction, is the six-month Euribor increased by 2. 9 percent.

Ten-year bonds were issued in the amount of one billion dollars at a coupon rate of 6.50 percent and a final interest rate in euros equal to the six-month Euribor increased by 3.1 percent.

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