The FINANCIAL — As of April 2012 non-resident buyers own treasury financial papers to the amount of 91.5 mln GEL (56.07 mln USD), which comprise 8% percent of total treasury papers outstanding on the market, according to National Bank of Georgia (NBG).
By the same estimates 70 percent of holdings of non-residents are in long term papers and the rest are short term treasury bills.
Despite the fact that the market for treasury securities was stagnating between 2005-2009, it is now up and running with investors keeping an eye on treasury bills auctions held at NBG. In total 122 auctions of T-bills/T-bonds have been held up until now.
It was in April of last year (2011) when the Georgian Government started to issue long term (5- 10 years) treasury bonds, while before it was only up to 1 year maturity financial papers issued which yield an interest of 7-11%.
The average interest rate for a new long term (5-10 year) treasury bond is 12.3%. As the National Bank of Georgia told The FINANCIAL, issuing long term government papers on the market has several advantages.
“Firstly it supports financial market development, since the higher the variety of financial instruments on the market the easier it is for market players to diversify the risks of their portfolio holdings and as a result better manage liquidity.
Trade with long term government papers helps to create longer end of the yield curve on the market which is also very important for market development. Besides that long term treasury bonds enable the Government to limit interest rate and refinancing risk on their domestic debt,” said NBG.
According to USAID EPI (Economic Prosperity Initiative) experts the debut of long term (10 year) treasury bonds has been very successful in Georgia. The demand was 2.7 times higher than the supply. Six commercial banks took part in the auction. The average interest rate for such bonds reached 12.3% which is normal for such a long term financial instrument. For more short-run treasury obligations interest rates range between 7-11%.
“The emission of treasury bonds stopped in June of 2005. It was when the interest rate on T-bonds increased to very high. In addition it was the period when the economy was in a good condition thus there was no need to fill up the budget deficit with such financial instruments. Emission of treasury bonds was being renewed in October of 2009. To the question whether there was or now is any threat to repay such bills, of course there is not and has not been such an incident including at a time when emission of them stopped in 2005,” said EPI experts.
“There has not been a fall in demand for treasury bonds in fact since the successful emission of Eurobonds. The Government became sure of the fact that there is huge demand for long term treasury bills which is why they started to issue such long term documents. In addition such a step from the Government supported the further development of the financial market of Georgia. First it was 2 year treasury bonds in 2010-11 whilst this year in 2012 the term has increased up to 5-10 years,” noted experts.
“To compare the emission of treasury bonds to that of other countries’ ones, it’s clear that for example in the U.S. namely over 10 years, 20-30 year treasury bonds are issued too. Emission of treasury bills covers the budget deficit that the Government has. They are the liquid financial instruments which are used by commercial banks for a variety of financial operations. Therefore the secondary market of such obligations is very active,” EPI experts told The FINANCIAL.
“If we look at the interest from investors about the emission of 10 year treasury bonds it’s clear that the outlook is very optimistic. Investors take a positive view of Georgia’s economy. An argument for this could be the gradual cut in interest rates of short term as well as 2-5 year bonds.”
“Treasury bonds are not only accessible for commercial banks in Georgia but also physical persons or juridical ones – for residents as well as non-residents. The latter can purchase such obligations through commercial banks. They can do it by themselves however on the secondary market. Unfortunately information about the individuals who buy those bonds is confidential and only their resident/non-resident status is known,” said experts.
“Up till now only a few auctions had been held which dealt with the issuance of long term treasury bills. That’s why it is too early to make a prognosis on continued purchase of the bonds; it’s better to wait for the coming auctions to be held,” concluded EPI experts.