Transcript: Interview with Lithuanian Director State Treasury Rasa Kavolytė

3 April 2025

By Marta Vilar – MADRID (Econostream) - Following is the full transcript of the interview conducted by Econostream on 1 April 2025 with Rasa Kavolytė, Director of the State Treasury Department of the Ministry of Finance of the Republic of Lithuania.:

Q: Ms Kavolytė, not long ago you issued two euro-denominated benchmark bonds. How did those transactions go?

A: Recently we successfully issued two euro-denominated benchmark bonds, one with a 5-year maturity and the other with a 15-year maturity. We are highly satisfied with the outcomes of these transactions, as they met all the objectives we had set prior to issuance. Both the demand and the final results exceeded expectations. The longer-dated tranche, in particular, was notably successful, especially given that we had not issued a bond of this tenor for quite some time.

Q: You issued €2 billion in total in those two transactions out of the €6 billion you are expecting to issue in 2025. Could you give us any details as to when and what to expect for the issuance of the remaining €4 billion?

A: Approximately €4 billion still needs to be raised in the international markets through public issuance. The plan is to enter the market at least twice this year—once before the summer and again in the fourth quarter. Various options, including other currencies, are currently being explored, although no final decisions have been made yet.

Q: Some debt issuers we have talked to highlight the recent interest in long-term debt. Do you also see this? Will you tap the market in the longer part of the curve anytime soon?

A: Indeed, we have observed increased interest in long-term debt. We would like to tap into the longer part of the curve, but everything comes at a price. Our current curve is not very liquid; therefore, we think that secondary levels do not necessarily reflect actual pricing levels of a potential new bond. However, the 15-year bond we issued earlier this year was our first step toward refreshing the curve at the longer end. If market conditions permit, I think we’ll be looking at issuing more – maybe a 20-year bond or so.

Q: Ever since Trump’s second presidency began, it has become clear that the US has become more sceptical about supporting Ukraine. With Lithuania so close to the war and given recent reports about Lithuania mining the border with Russia and Belarus, have you seen an impact on demand for Government Securities?

A: It is very difficult to distinguish changes in demand due to specific factors and obviously all significant announcements or market expectations affect our curve and demand, just like for any other sovereign. Our strategy remains focused on ensuring transparency and continuing to engage with investors to address concerns and provide reassurance where possible.

Q: You have issued 1-year defence bonds on a monthly basis since you started in October. How did these transactions go? Is there enough market demand?

A: The defence bonds are not designed as a market instrument. According to the Public Debt Law, the interest paid on defence bonds cannot exceed 2%, which is below prevailing market rates, so demand tends to be limited. This bond is not intended for investment purposes but rather as an opportunity for the wider population to contribute to defence financing, while also having in mind that the government could use that difference, the extra cash, which is not used for debt servicing again, for the same purpose. While we would welcome higher demand, we believe this instrument serves an important role in engaging the public and supporting defence efforts.

Q: Do you intend to keep tapping this market monthly? If so, for how long?

A: For the time being, there are no intentions to change the current monthly issuance.

Q: The interest rate at which you are delivering these issuances is 2%. Do you think there is room for you to lower that rate further? If so, when should we expect this to happen, and which rate level are you eyeing?

A: The rate will be lower once interest rates drop below 2%. This is a cap, meaning that if the interest rate for a particular tenor is higher than 2%, the coupon is set at 2%. If the interest rate for that one-year period is, for example, 1.8%, then the coupon is also close to 1.8% (there are minor adjustments). For a one-year maturity, we expect the coupon to be lower than 2% sometime closer to the end of this year but it will depend on further trajectory of the market rates.

Q: Would the new EU approach with regard to defence spending change your defence bond issuance plans in any way?

A: Given that our defence bonds are not intended as investment instruments, we do not anticipate that the new EU approach to defence spending will have any impact on our issuance plans.

Q: Has the expected increase in European defence spending had any impact on demand for Lithuanian bonds?

A: So far, we have not observed any significant impact on the demand for Lithuanian bonds related to the anticipated increase in European defence spending.

Q: These defence bonds are targeted for individuals and businesses, but not the market. Do you intend to deliver a defence bond issuance in the market?

A: At the moment, we have no plans to make the defence bond a market instrument or to issue a defence bond that would have the secondary market and be available there.

Q: Borrowing in domestic markets is expected at €2.5 billion in 2025. How do you expect to distribute these issuances throughout the remainder of the year?

A: We conduct auctions every Monday, and our borrowing strategy is generally spread proportionally throughout the year, with adjustments based on auction demand. Given our significant need to borrow in the international markets, we may try to increase the auction amounts. However, everything will depend on market rates and auction demand. At present, we do not foresee any significant risk in raising the required funds.

Q: The last time you tapped the green bond market was in 2020. Do you plan to tap it again any time soon?

A: Currently, we have no plans to issue green bonds in the near future.

Q: In the event that you tapped the market again, would you go for a new bond or would you reopen the 10-year bond issued in April 2018?

A: As mentioned in the previous answer, we have no plans to issue a green bond in the near future.

Q: Are you planning to deliver any innovations soon?

A: The Treasury is always considering possibilities in the market, including the adoption of new technologies and innovations. We do have some thoughts in mind, but until actual steps are taken, we prefer not to comment further.

Q: In mid-March, Scope Ratings maintained long-term rating at A for Lithuania and maintained a positive outlook. The other credit rating agencies also give you a rating of A. Do you expect an upgrade in your outlook or rating anytime soon?

A: Our economy is very resilient, so we see potential for an upgrade. However, given current market volatility and the unresolved situation in Ukraine—which has a direct impact on Lithuania—we don’t think an upgrade is feasible in the near future.

Q: Are you happy with your current share of foreign investors? Would you like it to be higher?

A: We are quite satisfied with our current share of foreign investors, for domestically registered issues the share of non-resident holders fluctuates around 30%. However, since our borrowing needs are increasing, we tap more internationally registered ISINs in our auctions, which are more in demand by foreign investors. Given that the domestic investor base has a natural ceiling, I would assume that foreign investment share will increase naturally alongside our debt.