By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 6 May 2026 with Rasa Kavolytè, Director of State Treasury Department of the Ministry of Finance of the Republic of Lithuania.
Q: You recently introduced 2- and 3-year defense bonds alongside the existing 1-year maturity. What was the main rationale for extending along the curve?
A: The primary objective was to enhance the attractiveness of defense bonds as an investment instrument. Extending maturities to 2 and 3 years went hand in hand with the removal of the previously binding 2% interest rate cap, which allowed us to offer market-aligned yields. This combination enabled us to position defense bonds as not only a vehicle for patriotic contribution, but also as a competitive and flexible investment option accessible to a broader investor base. We have been incrementally refining the program since the beginning of the year, including introducing continuous issuance and expanding the range of available maturities.
Q: Should we expect further developments in the defense bond program, potentially including access for institutional investors?
A: The program is primarily designed for residents and corporates seeking to make a voluntary contribution to defense financing. While institutional participation is not excluded, in practice we have observed limited interest from large institutional investors, who typically prioritize more liquid instruments with higher return profiles. At this stage, we are not planning any dedicated features specifically targeting the institutional investor segment.
Q: Could the program be extended to even longer maturities, such as five years?
A: At this stage, we do not plan to extend the program to longer maturities such as five years. Defense bonds are primarily a retail-focused instrument, and investor demand remains clearly concentrated in shorter tenors. The recent introduction of 2- and 3-year maturities already provides sufficient flexibility, and we do not currently see strong demand that would justify moving further out the maturity spectrum.
Q: How does investor demand compare between the 1-year product and the new longer-dated bonds so far?
A: There is a strong skew towards the shorter maturities, especially the 6 months and one-year, which is expected.
Q: To what extent could defense bonds substitute for part of your domestic borrowing program?
A: If demand remains strong, we are prepared to adjust the borrowing structure by reducing other instruments. However, defense bonds are not intended to replace core borrowing channels. They remain a voluntary contribution mechanism rather than a primary funding source.
Q: Is there a natural ceiling for the defense bond program, or could it scale materially if demand remains strong?
A: There is no strict ceiling. Issuance volumes will naturally depend on demand from households and businesses. That said, we do not expect defense bonds to attract amounts large enough to materially change the overall borrowing structure.
Q: In January 2026, Lithuania issued a €2bn dual-tranche benchmark transaction. Should markets expect another syndicated deal this year?
A: The €2 billion transaction in the beginning of the year was part of the €4.5 billion external funding that was planned for 2026. This means that we still have up to €2.5 billion to raise this year in syndicated transactions.
Q: Can you provide any guidance on the potential timing of these syndicated transactions?
A: The Treasury has secured other financing sources during this year that allows us sufficient flexibility to issue sometime in the next 6 months.
Q: What maturities are you currently considering, and would another dual-tranche structure be likely?
A: This will depend on the overall strategy going forward which is very closely linked to investor demand. Our redemption profile allows for several options, including a new 3-year, 7-year, 10-year or something even longer.
Q: If you return to the market, would you favor launching a new benchmark or reopening existing lines?
A: Generally, we prefer launching new benchmarks in our syndicated transactions as existing lines are being regularly opened in the auctions. This allows for maximum flexibility to react to market demand and ensure we increase the liquidity of our curve step by step.
Q: Which segment of the curve is currently seeing the strongest investor demand?
A: After a slight hitch in investor demand for our longer dated bonds in March, we are now seeing a clear improvement in both auctions and the secondary market. Even the very long end of the curve is finding buyers, but the belly of our curve tends to attract the most attention, largely because of the overlap in major investor bases.
Q: To what extent is geopolitical-driven market volatility influencing your issuance strategy?
A: Geopolitical risk remains a key driver of the State’s borrowing costs, and the volatility it creates can temporarily complicate market access. It forces us to plan further ahead and stay sensitive to shifts in investor mood. Our broader strategy remains unchanged, but timing becomes more constrained, nudging us slightly toward front loading.
Q: Are you comfortable with the current duration profile of your debt portfolio, or are you considering adjustments?
A: We remain fully comfortable with the duration profile of our debt portfolio. Recently, however, we revised our borrowing strategy, raising the minimum weighted average residual maturity from 4 to 6 years and reducing the short-term debt ceiling from 25% to 20%. This shift stems from the increase in general government debt and our focus on maintaining a risk optimal portfolio structure. It does not alter our strategic direction—if anything, it simply aligns the framework more closely with current realities
Q: Lithuania has not issued a sovereign green bond since 2020—should investors expect a return to the green bond market in the near term?
A: Currently we have no green bond issuance plans for the nearest future.
Q: Fitch Ratings has recently upgraded Lithuania’s credit rating, while S&P Global Ratings and Moody’s Investors Service have not moved. Do you expect further upgrades, and what would be the key triggers?
A: Fitch Ratings recently upgraded Lithuania’s credit rating, reflecting strong confidence in our economic and fiscal fundamentals, driven by robust growth, rapid income convergence, strong external balances with persistent current account surpluses, and prudent fiscal policy with low deficits and a stable debt trajectory despite rising defense spending. Overall, this upgrade is a clear endorsement of Lithuania’s economic resilience, disciplined fiscal management, and strong long-term growth potential.
Q: How do you assess Lithuania’s spread versus similarly rated peers, and do you see room for further tightening following the recent upgrade?
A: We believe—and this view is broadly shared by investors—that Lithuania’s spreads more than adequately compensate for perceived risks compared with similarly rated peers. In our assessment, there is room for further tightening, supported by strong macroeconomic fundamentals, improving credit profile, and increasing liquidity across the yield curve following the recent upgrade.
Q: Do you believe Lithuanian bonds currently trade with a geopolitical risk premium, and has that changed over the past year?
A: There is no single, straightforward explanation. Lithuanian bond spreads do reflect a premium versus peers, which can be attributed to a combination of factors, including relative liquidity and geopolitical considerations.
In our ongoing discussions with investors, we see differing views on the exact split between these components. From our perspective, liquidity conditions have improved over time and the liquidity premium has likely narrowed. Accordingly, the remaining spread appears to be more closely linked to broader geopolitical risk perceptions in the region.
