“Cyprus’ outstanding issued debt is around €4 billion, the current amount available for quantitative easing is around €1 billion,” or one quarter of the outstanding debt listed in exchanges at home and abroad, the lender said in a document obtained by the press. “Moreover, there is roughly an excess absorption capacity of around €1.2 billion for future debt issues”.
Cyprus’s eligible government debt includes three bonds issued on international markets worth €750 million, €786 million and €1 billion maturing in 2019, 2020 and 2022 respectively, Bank of Cyprus said. On top comes a total of €1.2 billion in domestic government development, widely known as KOXA, their acronym in Greek. Up to one quarter of the above securities is eligible for purchases as part of the quantitative easing.
Cyprus which has a credit rating below investment grade can participate in the quantitative easing as long as has successfully completes the reviews of its adjustment programme agreed with international creditors as part of a €10 billion bailout. The ECB’s purchase programme worth €1.1 trillion, also known as quantitative easing, announced in January by the its chairman Mario Draghi, aims at stimulating the euro area’s anaemic growth and help the 19-member currency blog avoid deflation.
While KOXA are listed at the Cyprus Stock Exchange and the other eligible bonds abroad, the bulk of the Central Bank of Cyprus’s asset purchases will not divert a significant amount of liquidity into the illiquid Cypriot market, a person with knowledge of the situation and not authorised to talk to press about the matter said on condition of anonymity.
The only benefit will be indirect in the form of reduced yields for government bonds on the secondary market amid the current turbulence caused by Greece, the source said.
The Central Bank of Cyprus started purchases of Cypriot government bonds on Friday and yields of Cypriot government securities on the secondary market fell. The yield of the 7-year government bond issued in April at an average yield of 4% was traded this morning at 3.65% compared to 3.77% on Friday. Cyprus’s overall government debt stood at €18.4 billion on March 31, 2015.
A Finance Ministry source who also spoke on condition of anonymity said that while the drop in Cypriot bond yields in recent days resulted from Cyprus’s participation in the ECB’s quantitative easing, an increase like in the case of other periphery countries in recent days cannot be ruled out down the road. “Cypriot yields usually follow periphery trends,” the source said.
The government is planning the issue of an unspecified amount of new debt in the second half of the year.
Source: Cyprus Mail
