Albania issued its first Eurobond in international markets on November 4th of 2010. A Eurobond is a bond issued in international markets (not locally) with a maturity of 1 year or more. At the announcement the bond had a 7.625% yield.

It matures in 09/11/2015, is issued in EUR, and the amount of issue was 300 million EUR. As the date of maturity of the bond gets closer, the Albanian government has 3 choices:

1.    Maturing the bond and repaying the creditors;
2.    Refinancing the debt with the current market conditions;
3.    Issuing another bond with the an increased amount and with the current market conditions, and not only refinancing the debt but also securing more funds which can be used for financing the budget deficit in the future.

For the issuer (in this case Albania’s government), the lower the yield, the lower the potential cost in case he decides to refinance.

The following graph presents the yield of the Eurobond for the period 2010-2015 (bid yield):


Source: Ministry of Finance, Bloomberg
Comments and analysis: ODA

Since its issue in 2010, the yield of the bond has increased in the period of September-December 2011 during the Eurozone crises, which lowered the demand for high risk, lower rated government bonds. During that period the yield reached a peak of 11.975%. In that moment, had the Albanian government decided to refinance its debt in Euro, the bond coupon would have been approximately 12%.

After that period, the yield has decreased reaching a low of 2.11% during April 2015. This decrease is not a result of a better macroeconomic environment in Albania, but of a general market optimism for the government debt of Eurozone peripheral countries after the ECB intervention (countries with similar credit conditions as Albania). This has had a very positive impact on the bonds performance and actually the Albanian government would have a lower cost of refinancing in Euro compared to the initial issue. Also as the maturity of the bond comes closer, the yield decreases.

Based on these data, and the current market environment for similar debt, there’s an increased possibility that the Albanian government chooses the 3rd option: to issue another 5 year Eurobond but with an increased amount exploiting current market conditions and securing more financing for public investments in the future.