The Bulgarian government has gone to the international capital markets in search of a loan in the form of two bond issues - with maturities of nine and thirteen years, respectively. At this point, the exact amount of funds that the Ministry of Finance aims to raise is not known, but according to two independent sources of “Voices“ it is between three and four billion euros. Converted into leva, these values should be enough to cover the officially planned budget deficit, as well as to repay old debts maturing this year.
However, the problem with the issues is serious: the state has offered extremely high yields for investors and the final results of the issues may turn out to be very far from optimal. Instead, investors have a chance to receive a "gift" from the state, on which high interest will accrue for years.
The technology of issuing loans is as follows: The Ministry of Finance, through consulting banks, announces an attempt to issue bonds with a given maturity. A base interest rate is indicated, and it is also stated whether the bond is offered at a price below or above par, which implies a higher or lower yield to maturity compared to the official interest rate, respectively.
Depending on the initial offer, investor interest is formed. If it exceeds the initially announced amount of bonds several times, intermediary banks begin to explore the possibility of lowering the yield with those wishing to acquire the securities. The yield is reduced by maintaining the interest rate, but increasing the price of the bonds compared to the initial offer.
And this is where the problem with the Bulgarian issues arises: the initial discount from the nominal value is so large that it implies an extremely high yield for investors - one that the current market situation would not provide them.
Experts have commented that any yield exceeding by more than 90 basis points (0.9 percentage points) the average interest rate swap for the eurozone (mid swap - the popular benchmark for comparison) for nine-year debt would be a kind of gift to investors at the expense of Bulgarian taxpayers. In this case, the government has proposed as starting values the average interest rate swap plus an addition of 150 basis points for the nine-year issue and 195 basis points for the thirteen-year issue.
Usually, when there is great interest in the securities, intermediary banks conduct two, maximum three rounds of talks with investors to reduce the yield. In order to achieve the yield desired by the state, the initial conditions should not differ significantly from its target. Otherwise, many more rounds of negotiations will be needed in which intermediaries will persuade investors, or more aggressive steps will be required to lower the yield. In both cases, there is a risk: either investors lose interest in the securities, or the state capitulates and issues the bonds at a yield much higher than the potentially possible one.
A representative of an international investment bank that monitors debt markets and an expert with decades of experience in debt management commented that the initial offering was at levels significantly below market levels. The discount borders on outrageous, as the Ministry of Finance has only put itself in a position to conduct nervous negotiations to reduce the yield, accept less favorable than market conditions, or abandon the issue, which would bring serious image damage - just weeks before the announcement of the convergence reports on Bulgaria's readiness to introduce the euro from the beginning of 2026.
Both specialists, with whom “Voices“ talks, point out that today is a very weak day for debt markets, which means that both those seeking financing and investors are waiting. However, Bulgaria has chosen the most inopportune moment to enter the market. It would be far more sensible to wait until mid-May, when new inflation data will be published and Bulgaria's performance will be able to be assessed in a comparative manner with other countries.
Unlike August last year, when Bulgaria issued debt with a similar nominal value in one day, today the country has a regular, not a caretaker government, and a clear horizon for joining the eurozone - provided that it meets the criteria by May. According to experts, it is precisely the significantly better prospects for the country that should be the story that convinces investors to accept a lower yield on the new Bulgarian debt.
Whether this will happen will become clear at the end of the working day or tomorrow.