Cyprus’ first 30-year bond sale was overloaded with orders on Wednesday, with high demand for such long maturities showing just how much Europe’s bond market is adjusting to expectations of persistently low interest rates and central bank stimulus.
Cyprus began marketing five-year and 30-year bonds on Wednesday, its first-ever in the latter category, and demand exceeded €9 billion, split evenly between the two maturities, bankers said.
Finance Minister Harris Georgiades described the development as extremely positive on Wednesday.
Georgiadis said the money raised would be spent exclusively on the early repayment of the Russian €2.5bn loan, the balance of which amounts to €1.6bn, stressing that the double bond issue ensured savings in debt servicing and securing very long-term lending and facilitating debt management.
“This is an extremely positive development,” he said. “It is very positive for the economy and its image internationally and this is reflected in the upgrades we have received lately, and an extremely positive response from the international investment community.”
Georgiades reiterated Cyprus’ thanks to the Russian government for the loan in 2013, just as the island hit its lowest point and the banking system was on the verge of collapse.
“As developments showed today, it is confirmed that we can stand on our own two feet and rely on our own strengths,” he added.
Asked to comment on whether the early repayment of the Russian loan was politically motivated, Georgiades said the political agenda “is about consolidating, strengthening and securing the sustainability of public finances”.
“If you are referring to this, it is of course a highly political agenda, because through these political initiatives we have a concrete and tangible economic benefit. This was the goal, a goal that seems to have been achieved,” he said.
Asked about reports of attempts to reduce Russia’s influence in Cyprus politics, Georgiades said: “There was no influence.”
The demand for 30-year debt from a country that needed a bailout from the European Union and International Monetary Fund just five years ago is remarkable and says as much about the state of the European economy and bond market as Cyprus’ prospects per se, debt managers said.
Several other euro zone countries have sold super long-dated debt in recent years and the average maturity of government bonds in the bloc is now at the highest level on record at nearly 7.4 years.
“It is a demonstration of the backdrop we are in at the moment and it also shows how far Cyprus has come from the crisis days,” said one of the bankers managing the sale.
Cyprus’ 10-year bond yields had hit a one-month high of 1.61 per cent in early trade on Wednesday, but as details around demand for the deal emerged, that yield was five basis points lower on the day at 1.52 per cent on the vote of confidence from investors.
Similarly, Cyprus’ current longest-dated bond, a 15-year note, hit a three-week high of 2.277 per cent before dropping to 2.19 per cent, lower 6 bps on the day.
Cyprus’ banking sector ran into trouble during the wider euro zone debt crisis, forcing it to accept aid from the European Union and the International Monetary Fund.
However, the country returned to the bond markets in 2014 and has regained an investment grade credit rating from two of the three main ratings agencies.
A successful 30-year debt issue would be as much a reflection on the broader market environment as it is of the country’s own recovery, said Commerzbank rates strategist Rainer Guntermann.
“This combination of a view that growth will stay relatively sluggish and inflation will be lower and rates will stay lower almost forever is fuelling this hunt for yield, and investors are taking more risk and duration for pick up,” he said.