Government bonds available for purchase from Wednesday

Estonian government bond from 1927. Photo: Romet Kreek

From Wednesday until Sept. 9, the people of Estonia will be able to buy Estonian government bonds through their bank -- the volume of the offer aimed for the first time at Estonian retail investors totals 200 million euros.

The funds to be raised will be used to cover the budget deficit and increased defense costs.

The deadline for redeeming the two-year bonds is Sept. 16, 2026, when the Estonian state will repay the owner of the bond an amount corresponding to the nominal value of the original bond. In addition, the state pays a fixed interest of 3.3 percent per year on the bonds, the payment is made once a year. Estonian government bonds can be subscribed through LHV, Swedbank, SEB and Luminor, the minimum subscription amount is one bond with a nominal value of 100 euros.

«Borrowing is an inevitability for Estonia in the current situation, not a goal, but this time it also means involving the savings of its citizens, which will hopefully strengthen the connection with one's country and its well-being. Our deficit is not a good sign of public finances, but covering it in this way also supports the people, the cohesion of society and the financial market,» Finance Minister Jürgen Ligi said.

Janno Luurmees, head of the treasury department at the Ministry of Finance, said that the offering of bonds and the calculation of interest have taken place on a market basis.

«The lower-than-usual nominal value and shorter period is due to our desire to make the bond available to as many people as possible,» Luurmees added.

Nasdaq Tallinn CEO Kaarel Ots said that with the government bonds, a new and accessible financial instrument will be created for the Estonian capital market, which will also help to promote general financial wisdom.

«It could be of interest to both a novice investor for taking their first steps on the securities market and an experienced investor for diversifying risks. The biggest difference with a fixed-term bank deposit is precisely its liquidity -- you can buy and sell a government bond if you wish,» Ots added.

Estonian government bonds can be subscribed through LHV, Swedbank, SEB and Luminor. To subscribe to bonds, the person interested needs a securities account, which can be requested at a service provider offering a securities account, including at one's home bank. A company or other legal entity needs an LEI code to subscribe to bonds, in order to request it, a LEI code service provider must be contacted. Government bonds can be subscribed by all persons who have a securities account with an account manager registered in Estonia.

Subscribing to an Estonian government bond means an expression of desire to acquire Estonian government bonds, the investor can submit a subscription request as a subscription order to which they have added the maximum number of desired bonds. The nominal value of one bond is 100 euros. The amount of money required for subscription must be in the account at the time of submitting the subscription order and it will be reserved in the account until the bonds are distributed.

The Estonian state gives preference to retail investors when distributing bonds, but the division of bonds between retail investors and institutional investors has not been determined in advance.

The results of the Estonian government bond offering and distribution will be announced on or around Sept. 11 and bond trading on the Baltic Main List of the Nasdaq Tallinn stock exchange will begin on or around Sept. 17. The Estonian state has involved AS LHV Pank and Swedbank AS as transaction managers. The legal advisor of the transaction is the Sorainen law firm.

A government bond is a security issued by the government, which is repaid on a specified maturity date along with a predetermined amount of interest. Interest payments are typically made once a year on a specific date. Those who wish to subscribe for the bonds need a securities account, which can be opened at their home bank. The Estonian retail bond will be freely tradable and listed on the Nasdaq Tallinn stock exchange.

In recent years, several countries of Europe, including Belgium, Croatia, Ireland, Italy, Latvia, Lithuania, Portugal, Romania and the United Kingdom, have issued government bonds aimed at retail investors, although the bonds have not always been exchange-traded. The maturities of the bonds have ranged from one month to ten years. Since a government bond is one of the lowest-risk financial instruments, their availability has brought new small investors to the securities market.

Estonia has been active in issuing both long-term and short-term bonds since the beginning of the COVID-19 crisis in 2020. At the end of May, investors had four billion euros of long-term and 1.1 billion euros of short-term Estonian government bonds in their portfolios. These bonds have been mainly targeted at professional investors and international funds.

The deposits of Estonian households amounted to a record 12.4 billion euros at the end of July this year, with term deposits accounting for 4.3 billion euros of the total.