Lithuania cautiously strikes at bond rally

By bne IntelliNews January 29, 2013

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Lithuania sold €400m in euro-denominated bonds on January 28 as it took advantage of the emerging market bond rally to repay maturing debt. The continued hunt for yield saw the market shrug off the recent election of a left-leaning government to see the issue go through at close to record low pricing, although officials say it could have been tighter.

The tap of the 4.85% €1bn February 2018 Eurobond sold at a yield of 2.631%, the finance ministry announced, according to Bloomberg, in line with guidance of 140 basis points over mid-swaps. A similar tap of the issue in April was priced at 4.216%. Lithuania accessed the international bond markets twice in 2012, first with a $1.5bn issue of 10-year notes at 6.625% in January, followed by a CHF175m 2% 5-year note in September.

The proceeds from the new issue will be used to pay down maturing debt and finance the budget deficit, the ministry said. Vilnius is due to repay a €1bn eurobond in March.

The government, which defeated the austerity-toting centre-right administration in October but was only installed following a long standoff with the president, has recently been talking up its fiscal management. Its claims that it intends to quash the deficit further - to 2.5% of GDP this year from 3.0% in 2012 - and press ahead with a bid to join the euro, which indicates tight policy for the next two years, clearly did much to convince investors already seeking exposure to the strong growth being exhibited by the Baltic economies. Lithuania's grew 3.5% last year, and is targeting 3.0% in 2013.

Still, the pricing was not as tight as it could have been, according to one unnamed source, who told Euroweek that Vilnius had left a strong premium on the table in order to ensure demand. "It's offering around 15bp-20bp of pick-up to the outstanding notes, which is a tiny bit generous given the current market and that it's a relatively small deal," said one of the syndicating officials.

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