The Bank of Latvia

[x]

For your convenience, please select the section which will be the first to open when the website www.bank.lv is opened in the future..

You have selected the section

Should you wish to change your selection, open another section of your choice and click on the link "Next time start with...". Should you have any inquiries, please contact the webmaster at webmaster@bank.lv.

Bank of Latvia

In the first quarter, the situation in the market for Latvian government securities was largely determined by the issue of 5-year bonds on January 24. Banks purchased all bonds supplied (60.0 million lats). As a result of the above issue, the total supply of government securities (78.0 million lats) and the issue of government securities (67.6 million lats) were larger than in the previous quarter (by 52.9% and 38.2%, respectively). In the first quarter, one auction 3-month bills, two of 6-month bills and one of 12-month bills were held. The issue of 3-month bills totalled 1.2 million lats (1.9 million lats in the fourth quarter of 2000). The issues of 6- and 12-month bills (3.9 million lats and 2.5 million lats) also were smaller than in the previous quarter (12.0 million lats and 10.0 million lats, respectively).

The demand and supply ratio declined from 2.04 in the fourth quarter of 2000 to 1.25 in the first quarter of 2001. As available funds were invested in long-term securities in February and March, the demand for government securities in the primary market fell and only two auctions of government securities were held. Moreover, the sales of securities were lower than the amount supplied.

With the value of new issues exceeding the value of securities redeemed, the stock of securities outstanding increased in the first quarter (by 22.5%), reaching 264.2 million lats at the end of March. Bonds accounted for the largest part of government securities outstanding: the share of 5-year bonds increased from 27.8% in December to 45.4% in March, that of 3-year bonds decreased from 23.2% to 18.9%, and that of 2-year bonds decreased from 22.7% to 18.6%. At the same time, the shares of bills declined: that of 3-month bills to 0.5%, that of 6-month bills to 6.0% and that of 12-month bills to 10.6%.

In the first quarter, the weighted average discount rate was 4.5% on 3-month bills (a quarter-on-quarter rise of 0.5 percentage points), 5.6% on 6-month bills (a quarter-on-quarter rise of 0.7 percentage points) and 6.1% on 12-month bills (a quarter-on-quarter rise of 0.6 percentage points). The weighted average yield on 5-year bonds (8.16%) was lower than in the auction of April 2000 (8.82%). Such trend was indicative of lower domestic risks and long-term stability. The spread between yields on short-term and long-term securities narrowed.

The Bank of Latvia's portfolio of government securities decreased gradually (from 49.6 million lats at the end of December to 41.3 million lats at the end of March), as government securities became redeemable. The share of government securities held by the Latvian banking sector increased (to 61.0% of the total at the end of the first quarter), while that of government securities held by the Bank of Latvia decreased (to 19.7%). Of all government securities, 10.0% was held by non-residents, 6.0% by resident non-banks and 3.3% by government funds.

In the first quarter, the capitalization of the Latvian stock market ranged between 284 million lats and 374 million lats. In mid-March, when shares of the JSC Latvijas Unibanka were excluded from the official list of the Riga Stock Exchange, capitalization declined sharply (by 75.7 million lats or 20.4%).

The Dow Jones Riga Stock Exchange Index dropped by 2.5% in the first quarter (to 135.7; see Chart 20). The most pronounced change in the index was the March-end decrease, which occurred because of a fall in prices of shares in the joint-stock companies Ventspils nafta and Latvijas Gaze, which are among the most highly capitalized domestic companies whose shares are traded on the Riga Stock Exchange.

Chart 20

Dow Jones Riga Stock Exchange Index

 

Turnover on the Riga Stock Exchange was low (average turnover in a session was 62 thousand lats); however, the number of transactions increased. This means that transactions were conducted mainly by small shareholders.

Compared with the fourth quarter of 2000, the value of transactions with corporate debt securities on the Riga Stock Exchange declined by 51.0%, as bonds of Svensk Eksportkredit were redeemed. (In the fourth quarter of 2000, over one-third of all transactions with corporate debt securities was transactions with these securities.)

At the end of the first quarter, the totals of nominal values of shares and corporate debt securities registered at the Latvian Central Depository and issued in public offering were 285.4 million lats and 18.0 million lats, respectively. In March, the first issue of debt securities with maturity of ten years took place. The JSC Musa Motors Grupa was the first company to issue corporate debt securities in a closed issue (the total of nominal values was 1.2 million lats; with an annual coupon of 10.5%).