Three objective reasons for increased investor interest in Azerbaijani gov't securities
Baku, Azerbaijan, Feb. 23
By Azad Hasanli – Trend:
Since early 2019, the Ministry of Finance of Azerbaijan has issued bonds totaling 85 million manats (AZN). Meanwhile, the demand for these government securities exceeded supply almost threefold and amounted to 246 million AZN.
The demand at the ministry’s last auction turned out to be almost five times higher than the supply - investors applied for 114.6 million AZN when government bonds were being issued for 25 million AZN.
These digits only confirm the increased investor interest in Azerbaijan’s government bond market, which has several objective reasons.
Firstly, it is more profitable to invest in manat bonds than to keep funds in foreign currency. As such, if the rates on US dollar deposits currently vary within 1 to 3 percent, then the yield of bonds of the Ministry of Finance comes to 9 percent.
Secondly, the stability of the manat increases the attractiveness of government bonds, which are issued in the national currency. In 2017, the manat strengthened against the dollar by 4 percent, and then in the first quarter of 2018, by 0.01 percent. Since March 2018, the rate of manat against the dollar stands at 1.7. The persistence of high investor demand for manat bonds for quite a long time is indicative of their confidence regarding the future of the national currency of Azerbaijan.
Thirdly, the Ministry of Finance regulates supply according to demand. For example, if earlier the ministry issued short-term bonds with a circulation period of 1 year, then later, amid growing demand from investors, the issue of medium-term bonds with a circulation period of 2 to 3 years began. In the future, the likelihood of the ministry issuing 5-year bonds is not excluded, which will only spur interest in manat bonds.
Another important aspect is worth mentioning here. The issuance of bonds by the Ministry of Finance contributes to the development of the Azerbaijani stock market. For example, if in 2016 the volume of the government bond market made up 567.4 million AZN, by 2018 it had already exceeded 1 billion AZN.
In the future, the Ministry of Finance can only increase its contribution to the development of the stock market. It should be noted that, as part of the State Debt Management Strategy adopted in Azerbaijan last year, it is planned to gradually redirect borrowing from the external to the domestic market. In other words, the Ministry of Finance will borrow more on the domestic market – and, accordingly, issue more securities.
Summarizing the above, it can be noted that investors are interested in investing in Azerbaijani government bonds. In fact, by investing in 2 or 3-year-old bonds, they show that they have faith in the stability of the manat in the medium term. Manat bonds may turn into a good alternative to bank deposits for the population, and a stable source of income for companies.
Azad Hasanli - Head of Russian News Service at Trend News Agency