Austria Raises a Further 1.5 Billion Euros via Federal Bonds
The Republic of Austria has successfully placed federal bonds with a total value of 1.5 billion euros on the capital market. According to the Federal Financing Agency (OeBFA), demand for the securities was once again high - a sign of continued confidence in the Republic's creditworthiness.
Austria's Federal Financing Agency issued 1.5 billion euros of federal bonds, covering 60% of its financing requirements for this year, with a yield of 2.943 percent for ten-year bonds and 3.402 percent for 19-year bonds. / Picture: © Vindobona.org
Austrian Treasury (OeBFA) Managing Director Markus Stix spoke of “good conditions” and emphasized that this issue already covers around 60 percent of the expected financing requirements for this year. Although a possible adjustment to the federal government's new budget is still pending, Stix does not anticipate any far-reaching changes.
Attractive maturities, stable interest rate structure
Specifically, a ten-year bond was increased by 900 million euros and a bond maturing in 2044 was increased by 600 million euros. The yields were 2.943% (10 years) and 3.402% (19 years) respectively. The yield spread to German government bonds - a classic stability indicator - is currently around 40 basis points and therefore well below the interim high of 70 basis points. The long-term average is around 30 basis points.
“The capital market is very happy to buy Austrian government bonds,” says Stix. Austria benefits from its reputation as a stable issuer in the eurozone - a fact that cannot be taken for granted given the geopolitical uncertainties and economic slowdown in parts of Europe.
Market expects interest rate cuts - also in the USA
The current demand is being boosted by the expectation of falling key interest rates, among other things. According to Stix, the market is already pricing in an initial cut of 25 basis points by the European Central Bank (ECB) for June. Interest rates could gradually fall to as low as 1.5 percent by the end of the year - the ECB's key interest rate currently stands at 4 percent. In the USA, the market is assuming a possible reduction of up to 80 basis points by the end of the year, with a first interest rate cut expected in July at the earliest.
For investors, the return to a “normal interest rate structure” - i.e. higher interest rates for longer maturities - is an additional argument. This also makes it easier for OeBFA to place long-term bonds.
Financial market remains well-disposed toward Austria
Given the robust demand and stable macroeconomic conditions, Austria is currently able to secure long-term financing at favorable conditions. This not only strengthens the scope for public budgets but also sends a signal to international investors: the Alpine Republic remains a reliable partner in the capital market.