Latvian financial experts compare government bonds: Latvian bonds have a nominal value of 50 euros and interest on them is not subject to income tax. Estonian bonds are likely to be especially popular among institutional investors. According to Vlad Dmitriev, Head of Treasury at Citadele Bank, the Estonian government’s decision to offer bonds to retail investors was expected and has received broad support in the banking community: “This is an attractive offer from the perspective of any liquid investment portfolio. The interest rate on Estonian government bonds is 50 basis points higher than the six-month Euribor rate expected by financial markets over the next two years.” According to Dmitriev, Estonian depositors prefer term deposits with a term of six months to one year – they can currently be opened in banks with an interest rate of up to 3.75%. "As a result, in addition to private investors, semi-professional investors such as pension funds, real estate-related companies, investment funds and, of course, banks will probably actively invest in two-year government bonds with an interest rate of 3.3%," Dmitriev added. Although the Estonian state gives preference to private investors over institutional investors when distributing bonds, the distribution between them is not fixed. "It is assumed that up to a quarter of the total volume of 200 million euros will go to private investors, and the rest to institutional investors," Dmitriev assessed the prospects for the bond issue. "The recent large losses on the investment market may prompt Estonian private investors to consider safer investments such as Estonian government bonds and bank deposits in order to diversify risks," Dmitriev added. He noted that, for example, in 2023, private investors showed the greatest interest in Latvian government savings bonds, with investments increasing by an average of 50 million euros per quarter. Popularity of Estonian government bonds predicted in Latvia Government bonds for private investors have been issued in Latvia since 2013, and, according to Citadele economist Mārtiņš Āboliņš, they have become popular in recent years: “One of the goals of issuing government bonds was to force banks to increase interest rates on deposits. Also, compared to Estonians, Latvians are less active in the investment sphere, so the emergence of government bonds helped people think about different investment options for their savings.” About 250 million euros have been invested in government bonds in Latvia over the past two years. According to Āboliņš, Latvian bonds have proven themselves to be a good alternative source of government financing. The Latvian government offers bonds with different maturities, with a minimum investment of 50 euros and a term ranging from six months to 10 years. In Latvia, retail investors do not have to pay income tax on interest on government bonds. The minimum subscription amount for Estonian government bonds is one bond at a price of 100 euros, and income tax is withheld from interest on bonds paid to individuals. Despite the slightly different conditions, Āboliņš predicts the popularity of Estonian government bonds: “Based on the example of Latvia, we can say that government bonds attract buyers both due to good yields and for patriotic reasons, since the funds raised are used for the benefit of the country. For many, it is important that their investments are beneficial in a broader sense – in this case, for example, they are used to strengthen the country's defense capability.” Read RusDelfi wherever it is convenient for you. Follow us on Facebook, Telegram, Instagram and even TikTok.
