Slovakia launches sale of government bonds: attractive yield without risk

The sale of state bonds is expected to be launched by the state in the spring of next year. "The key issue of this project is the distribution of these bonds. We have tried to prepare this project to make it as simple as possible for the people. The selected banks will prepare trading points across the country so that every citizen who is interested in buying a bond will find such a trading point without any problems," said Daniel Bytčánek, director of the Debt and Liquidity Management Agency.

The bonds will have a short-term maturity. The state wants to offer two issues at a time to start with, so that people can choose how long they want to invest the money for. Whoever needs to invest for two years will buy a two-year bond. Those who can put the money away for a longer period will be offered a four-year bond. The interest rate, i.e. the yield, will then be different.

The minimum amount for which you will be able to buy a bond will be EUR 1 000. Unlike most countries in Slovakia, there will be no upper limit. You can therefore buy for many times the amount of 1 000 euros. The state plans to issue the first two bond issues for a total of EUR 300 million.

No risk

Compared to a time deposit or other short-term investments, the big advantage of government bonds is that they are risk-free. "The state guarantees 100% certainty that the funds that a citizen has invested in buying a state bond will definitely be returned to him in the horizon of those 2 or 4 years, and the state guarantees a return for a period of 2 or 4 years," Bytčánek said, adding that investors will find out what kind of return they can expect a few weeks before the launch of the project itself.

Apart from the certainty that the small investor will not lose his money, the bonds offered by the state will be tax-free. "The coupon that we will pay out once a year will be tax-free, meaning that the yield of this bond will be a 'net' yield and there will be no need to take any further steps as far as taxation is concerned," he added. There are also no brokerage fees waiting for you at the bank.

The Central Securities Depository of the Slovak Republic is also ready for trading in government bonds. "Having gone through the process of re-licensing under the European Central Depositories Regulation, we operate on the European Central Bank's platform, T2S, so our infrastructure is sufficiently robust and secure to be able to service this product as well," stated Martin Wiedermann of the CSD SR.

Mix of factors

One of the factors that will have an impact when deciding whether to go ahead with a sovereign bond purchase is yield, according to Michal Maxim of consultancy KPMG. "Everybody would of course like to have the highest yield possible. A retail investor will often compare the yield with products such as a fixed deposit. He doesn't do sophisticated analyses on risks and returns, he compares it to the return he sees in products that are commonly available to him," he says.

Another equally attractive factor that can motivate people to invest is affordability.

According to Maxim, it depends on what target group the government is aiming at with the bonds. "If the target group is people aged 50 and above, they are more used to visiting an institution where they can get such products. If we want to target the younger generation, and we are already seeing this in a number of countries, the distribution channels need to expand over time and it certainly doesn't hurt if there is a digital platform. People can then secure that bond in three clicks. That can attract the younger generation," he thinks.

In Slovakia, sales will start in branches of selected banks. If the transaction is successful, the director of the Debt and Liquidity Management Agency has not ruled out offering the bonds in the online space or through mobile apps in the future, in addition to commercial banks.