Estonia raises €373 million through short-term bonds — ERR News
Estonia issued short-term government bonds worth €373 million. The average yield on securities maturing in six and 12 months was 2.91% and 3.209%, respectively.
The issue is intended to refinance short-term bonds that have matured. As ERR News reports, the auction generated significant investor interest following May’s placement of 10-year Estonian government bonds, for which demand was more modest than during previous offerings.
Short-term borrowing program
The bonds were issued under a short-term borrowing program approved by the finance minister in 2020. It allows securities with maturities of up to 12 months to be issued repeatedly, while the interest rate depends on market conditions.
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Such issues are intended to ensure uninterrupted management of the state’s cash flows. Short-term bonds are offered only to professional investors.
Borrowing costs
SEB financial markets risk consultant Erik Laur noted that the cost of short-term financing has increased by about 0.5 percentage points over the past six months. In his assessment, raising €373 million for six to 12 months will cost the state approximately €1–2 million more in interest than borrowing the same amount six months ago.
At the same time, Laur stressed that the achieved yield is not historically high for Estonia: three years ago, securities with similar maturities had to offer yields of more than 4% to attract investors. According to him, Estonian government bond auctions were usually oversubscribed seven to ten times, while the May issue of 10-year securities was subscribed only slightly more than twice. In his view, the current auction indicates that Estonian government bonds remain attractive to investors.
