Slovenia's borrowing costs held close to recent record lows on Wednesday after it unveiled a plan to reprofile its debt in a move that takes advantage of the European Central Bank's massive bond-buying scheme. In its third such move this year, Slovenia said late on Tuesday that it would buy back old dollar debt that is not eligible for the ECB programme. At the same time, it will issue new euro bonds, Thomson Reuters' markets news service IFR reported.
The deadline for the dollar bonds tender, which will be for a maximum $500 million, is October 26 - the same date the euro bonds are expected to price. The move, also undertaken by Latvia last year, could ease concerns that the ECB is running out of Slovenian bonds to buy, while having little overall impact on the country's debt levels.
It also provides an opportunity, analysts say, for the small issuer to take advantage of ECB demand for euro zone government bonds. The central bank has been buying bonds across the region since early last year in an effort to boost economic growth and inflation. While talk this month of a potential "tapering" of the programme has unnerved the market, many analysts expect the scheme to run beyond its March 2017 end date.
"We have not heard yet about what kind of bond this will be, but Slovenia will probably make sure it's a five or 10-year issue - one that will be eligible for QE," said Martin van Vliet, senior rates strategist at ING. "It is a smart move - taking advantage of a large buyer in the market. The ECB is likely to remain around for much of next year, so it makes sense to front-load funding."
Slovenia's 10-year bond yield, an indication of the rate at which the country can borrow on financial markets, traded at 0.61 percent on Wednesday. It edged higher after the debt announcement as traders priced in new issuance but remains within sight of this month's record low of about 0.55 percent. Slovenia, which joined the euro zone in 2007, conducted bond swaps in May and August. The debt plan is also a way for Slovenia to benefit from low bond yields, said Patrick Jacq, Europe rate strategist at BNP Paribas.