Estonia’s long-term government bonds are in high demand
Estonia issued a 10-year long-term government bonds in June 2023. A total of EUR 500 million of bonds are available on the market at a coupon of 3.6% per annum. According to the Ministry of Finance, the additional issue was due to high demand from investors. The ministry said more than 176 investors were willing to subscribe to more than four billion euros. The market situation was more favourable than last autumn, which made it possible to place the bonds at a lower price. The demand for Estonian bonds exceeded the volume of the issue by a factor of eight.
In October last year, 10-year bonds worth EUR 1 billion were issued. The interest rate was 4% per annum. Prior to that, in June 2020, the issue amounted to EUR 1.5 billion with an interest rate of 0.13% per annum.
In spring 2023, the Estonian Ministry of Economic Affairs published an economic forecast. It estimates that the country will need to borrow around EUR 1.36 billion this year, which will be used to cover the budget deficit. The government has not specified what form the funds will take. However, the interest rate will be around 3-4%. It is important to note that this is not the first time the authorities have resorted to borrowing to support the budget. The government has also issued bonds for this purpose. However, the situation has become more complicated this year as the cost of repaying the loans has increased.
The Ministry of Finance plan
The Ministry of Finance plans to cover the budget deficit by selling long-term and short-term government bonds and loans. This strategy will be in place until the year 2027.
In March 2023, 6-month and 12-month bonds were issued for approximately EUR 250 million. The proceeds went towards the refinancing of bonds issued in 2022. In total, the authorities intend to borrow around EUR 1.3 billion by the end of the current period. They will take some of the money from the April issue of 10-year bonds. The government notes that the terms for repaying the budget deficit could change as the market remains volatile. At present, the ten-year rate is 3.6 %, the six-month rate is 3.3 %, and the twelve-month rate is 3.2 %. So far, the Ministry has no plans to raise or lower interest rates. As of March this year, Estonia’s debt stood at EUR 4.5 billion. 63% of the debt was in bonds and 37% in loans.
