Transcript: Interview with Latvian DMO Head Kaspars Āboliņš

10 June 2025

By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 9 June 2025 with Kaspars Āboliņš, director of the Latvian State Treasury.

Q: Your borrowing estimate for this year is €3.6 billion. How far into that are you already?

A: This year we have already raised €1.6 billion or approximately 45% of the estimated necessary funding in 2025. Recently in May we took advantage of constructive market backdrop to return to euro capital markets. We successfully priced €1 billion of new 5-year notes, marking our first syndicated transaction this year.

Our regular supply of bonds (but in smaller volumes) is provided to investors in auctions via primary dealers. The Treasury offers TAP issues of outstanding Eurobonds originally issued in international financial markets with various remaining maturities. The amount raised through regular auctions has reached €490 million in 2025.

As regards the specific product for retail investors, the Treasury maintains available 24/7 online offer of Savings bonds to retail investors. The amount of Savings bonds owned by retail investors at the end of May reached €321 million. In January-May the gross issuance of Savings bonds was equal to redemptions (approximately €110 million).

Q: How do you plan to structure your issuance for the remainder of the year?

A: Core instruments for further borrowing will remain the same – syndications and auctions of bonds in capital markets. In parallel, we will continue to examine opportunities for borrowing from other alternative sources, like international financial institutions and European Commission under SAFE Regulation. Saving bonds will continue to play a strategic role in our borrowing programme to cover particularly retail investor needs.

Our borrowing strategy will not change. As always, we will maintain flexibility on the issuance timing, currency and tenors, combination of instruments and the use of other available alternatives to adjust borrowing volume to actual financing requirement during the year.

Q: On May 14 Latvia priced a new 5-year Eurobond for €1 billion. How did that go?

A: We capitalised on good momentum in the market both from demand and pricing perspectives. We saw high demand as the orderbook grew rapidly right after the guidance of “MS + 80bps area”. Substantial investor interest enabled spread tightening by 15bps. The orderbook was more than three times oversubscribed and final terms were set at the tightened spread of MS+65 bps. The issuance garnered a notable high quality account participation and geographically diversified final orderbook from 90 investors of European countries like Germany, the United Kingdom, Nordic and the Benelux and others. This was a successful transaction, and we reached our objectives.

Q: Are you expecting any other new issuances shortly?

A: We continuously monitor developments in financial markets and make decisions regarding potential issuances based on prevailing market conditions.

Q: You always mention the flexibility of your strategy. Where in your strategy would you say you are rather predetermined?

A: The current market environment requires a nimble approach, thus flexibility is crucial. But when it comes to the investors, the liquidity has always been key, and it has not changed over time. We focus on building a liquid yield curve, as it supports our further strategic decisions and enables us to adapt to market changes.

Q: Which part of the curve is attracting the most demand? Should we expect you to tap this part of the curve in the remainder of 2025?

A: We have experienced strong demand in both syndicated transactions and auctions irrespectively of the tenors we have offered. For example, this year demand in auctions has been at least three times higher on average than the amount sold. As regards to selection of tenor, it has always been a combination of considerations from the debt management strategy and debt portfolio perspectives, market conditions, pricing and investor demand.

Q: In 2024 you returned to the USD market after a 12-year absence with the issuance of 10-year bonds for USD1.25 billion. Do you expect to return to this market this year?

A: It was a strategic decision to return to the USD market. USD bonds provided diversification of our investor base and will serve as good point of reference for further issuances. In the long term, we see ourselves as a regular issuer in the USD market, but bond issuance will be subject to market conditions.

Q: Would you be open to issuing in any other foreign currency apart from USD? Is there any currency that is offering good opportunities now?

A: Yes, we would be open to opportunities in other currencies for diversification reasons, but at the same time the pricing would also matter and would be carefully analysed.

Q: Last year you said you saw yourselves issuing a new sustainable bond in the medium term. Is that getting closer?

A: Yes, our intention is to return with an ESG instrument and highlight our commitment to environmental and social goals. As you know, such issuance is much more complex and involves greater effort than conventional bonds, therefore issuance of new benchmark ESG-labelled bond is subject to availability of eligible expenditure and the situation in financial markets.

Q: Are you eyeing any specific tenor for this new sustainable bond?

A: Our approach in selecting tenors would not differ between conventional and ESG labelled bonds. In both cases, it would be a combination of market conditions, pricing, investor demand and strategic considerations.

Q: Last year you issued €275 million in savings bonds. Given that you suggest in your 2024 annual report a high demand for these bonds, do you plan to increase their issuance volume this year?

A: The primary goal of Savings bonds since their introduction in 2013 has always been to provide a safe investment alternative to Latvian residents, enhancing retail investors’ financial literacy without prioritising the attraction of investments in a specific amount.

The main advantage of Savings bonds for retail investors is the government’s guaranteed alternative to invest with a fixed return that represents current financial market rates - that is the key factor for ensuring stable and lasting demand for Savings bonds. In 2024 decreasing short-term euro interest rates impacted demand for Savings bonds, and growth of outstanding volume of Savings bonds currently is not as rapid as previously. However, demand remains stable and resilient, indicating the recognition and trust residents have in this instrument.

In the beginning of 2025, an automatic reinvestment functionality was introduced in the Savings bond online platform to make the reinvestment process in Savings bonds easier. The functionality is well received by retail investors and statistics show increased reinvestments in Savings bonds. Savings bonds with 12-month maturity remains the most popular tenor for retail investors, but increasing demand for longer-term savings bonds has also been observed.

Savings bonds are offered online 24/7 and all demand is allocated, therefore the Treasury does not set any targets on Savings bonds volume. All borrowings are managed within the scope of Debt and Cash Management Strategy.

Q: Some European sovereign debt issuers are planning to fund their increase in defence spending via bonds to the retail market. Do you plan to do the same? If not, do you have any preferred issuance for such funding?

A: We have noticed that several EU sovereigns are actively approaching retail investor base for implementing their annual funding programmes. Still, the objectives and modalities of such retail instruments are different in each country. We follow those trends in financial markets and analyse options that would be most appropriate for Latvia. We do not exclude possibility to explore such defence-related instruments in the future, but it would be beneficial for investors to have common guidelines on how such investments are classified and how risks of such portfolios are managed.

Q: Given your proximity to Russia, how would a potential ceasefire in Ukraine impact on the demand of your bonds?

A: The best positive impact to everyone would be lasting peace, not just ceasefire.

But in terms of the investors’ demand – it is driven mainly by our credit rating. Currently Latvia’s credit rating is at A category with stable outlook from all major agencies - S&P Global, Moody’s and Fitch Ratings. In accordance with the S&P view (June 2025), Latvia’s rating could be raised if risks from the war subside, underpinning an improvement in Latvia's economic growth prospects, foreign investment flows and budgetary position. According to Moody’s (January 2025), a resolution of the Russia-Ukraine military conflict that leads to a lasting reduction of geopolitical tensions and uncertainty affecting Latvia would be credit-positive. Fitch mentions that positive rating action is possible in case of a reduction of geopolitical tensions that limits Latvia’s exposure to external shocks (May 2025).

Q: On May 9 Fitch affirmed Latvia's credit rating at A- with stable outlook. Do you think an upgrade will come soon?

A: We would like to remind that on November 15, 2024, Fitch revised outlook from positive to stable and affirmed Latvia's credit rating at A-. On May 9, 2025, Fitch reaffirmed Latvia's credit rating at A- with stable outlook, meaning that the rating is not likely to change in the near term.

Currently Latvia’s credit rating is at A-level group with a stable outlook also from S&P Global and Moody’s.

Q: Latvian debt-to-GDP remains low by EU standards. Do you expect that to change significantly given the expected increase in defence spending?

A: Indeed, Latvia’s general government debt is below its credit rating peers and well below the euro area average.

Considering that in the current geopolitical situation an increase in spending on security and defence is a key medium-term fiscal priority, we anticipate a moderate increase of general government debt over the medium term, but the general government debt-to-GDP ratio will be maintained at a sustainable level, remaining below 60% of GDP and the euro area average.