Lithuania Sells 400 Million Euros of Bonds as Yield Tumbles

Lithuania raised 400 million euros ($538 million) in its first sale of euro-denominated bonds since April as improved economic growth and steps to cut the budget deficit spurred a plunge in borrowing costs.

The 2018 euro bond tap was priced to yield 2.631 percent, the Finance Ministry in Vilnius, the capital, said in an e-mailed statement. That was in line with guidance of 140 basis points above the benchmark swap rate. A 400 million-euro tap of the same issue last April was priced to yield 4.216 percent.

The Baltic economy is outpacing growth in most of Europe while deficit cuts in December have reassured investors, according to Royal Bank of Scotland Plc’s Mohammed Kazmi. Lithuania’s economy grew 3.5 percent in 2012 and will expand 3 percent this year, the Finance Ministry estimates.

“Lithuania is a relative growth performer in the region,” Kazmi, an emerging-markets strategist in London, said today by e-mail. “Its credit has also gained from political clarity after completion of the new Cabinet and adoption of the budget, as well as recent comments confirming commitment to euro accession in 2015.”

The yield on the February 2018 bonds rose to 2.502 percent in trading today, according to data compiled by Bloomberg. Lithuania needs to repay a 1 billion-euro bond due in March, the data show.

New Government

The four-party coalition formed after October elections approved a budget that reduced the planned deficit to 2.5 percent of gross domestic product this year, from about 3 percent last year.

The government and central bank agreed last week to seek euro adoption in 2015 and align policies with that goal.

Strong investor demand for emerging-market debt securities was also supporting the sale today, Kazmi said before the results were announced. Lithuania needs to raise a total of about $2 billion in international markets this year, he said.

“It’s definitely a good sign that Lithuania’s able to borrow at such a good rate at a time when markets are rather jittery,” Zygimantas Mauricas, and economist at Nordea Bank in Vilnius, said by phone. “Investors seem convinced that the country’s got its economy fully back on its feet.”

Credit Rating

Moody’s Investors Service rates Lithuania’s debt at Baa1, the third-lowest investment grade, while Standard & Poor’s Rating Service gives it a BBB rating.

Proceeds of today’s sale, which was managed by Barclays Plc and Citigroup Inc., will be used to finance the deficit and maturing debt, the Finance Ministry said.

Lithuania first sold the 2018 bonds in October 2007, when investors bought 600 million euros of the paper with an annual coupon of 4.85 percent. The total issue size is now 1.4 billion euros.

Before today, the country last tapped international markets on Sept. 19, when it sold 175 million Swiss francs ($189 million) of 2017 bonds with a coupon of 2 percent, its first sale in the currency.

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