Latvian government securities are issued to ensure financing of the government budget deficit and re-financing of the government debt, as well as liquidity of the government finances. Currently, the government securities are the main source of the government domestic funding.
The first issue of the government securities took place at the end of 1993. In the following years, as government financing requirements grew and the domestic securities market developed, investors were offered longer-term securities. Currently there are short-term T-bills outstanding with the original term-to-maturity of six and twelve months, medium term T-bonds with the original term-to-maturity of three and five years, as well as long-term bonds with the original term-to-maturity of ten and eleven years.
The issuer is the Ministry of Finance of the Republic of Latvia. According to “Regulations on Issuing Government Securities” approved by the Cabinet of Ministers on 6th of May 2014, the Treasury of the Republic of Latvia performs all transactions with government securities.
Classification of Securities
The government securities fall into three groups according to their original term-to-maturity:
Short-term T-bills - securities with original term-to-maturity one year or less;
Medium-term T-bonds - securities with initial repayment term over one year but not exceeding five years;
Long-term T-bonds - securities with initial repayment term longer than five years.
The government short-term T-bills are sold at a discount and their nominal value is repaid on the maturity date. The government medium-term and long-term T-bonds are sold with semi-annual or annual coupon payments and their nominal value is repaid on the maturity date.
Latvian government securities are sold in auctions of primary placement of securities. Announcements on upcoming auctions and tender results are published on the Treasury homepage here. At present, there are two types of auctions:
Competitive multi-price auctions organised by the Treasury at NASDAQ OMX Riga Stock Exchange electronic trading system Genium INET. The auctions are usually held on Wednesdays and the bids are accepted until 12pm. The settlement for securities usually takes place two business days later, if the Treasury has not specified another date. When bidding the participants indicate the amount and yield rate of securities.
Non-competitive fixed rate amount auctions organised by the Treasury at NASDAQ OMX Riga Stock Exchange electronic trading system Genium INET. The auctions are usually organised on Wednesdays after the competitive auctions and the bids are accepted until 3pm. The settlement for securities usually takes place two business days later, if the Treasury has not specified another date. The bids, where the participants indicates the amount of securities to be purchased, are covered proportionally to the submitted nominal amounts at the weighted average yield rate set in the competitive multi-price auction. The maximum amount any one participant may submit is the amount offered by the Treasury in the respective competitive auction.
The coupon rate for newly sissued T-Bonds is calculated by rounding down the weighted average yield rate for the confirmed bids at the competitive multi-price auction to the nearest 1/8 percent. The Treasury has the right to set a fixed income rate for a new issue in advance.
Securities may be sold via tap sales by direct deals at NASDAQ OMX Stock Exchange electronic trading system Genium INET. Information on upcoming new issue and/ or reopening is published on Genium INET.
All government domestic securities are registered at the Latvian Central Depository. Since 10th August 1999, Latvian government securities, which are sold at the initial placement via auctions are registered and included in the official list of NASDAQ OMX Riga Stock Exchange.
Participants of the initial placing securities in the competitive multi-price and non-competing fixed rate amount auctions as well as tap selling are primary dealers - NASDAQ OMX Riga Stock Exchange members that have a specific Agreement with the Treasury (see the Primary dealers section).
As an individual investor in the primary placement of the government securities, in compliance with respective agreements with the Treasury on purchase of government securities, the Financial and Capital Market Commission is allowed to invest Deposit Guarantee Fund and Fund for the Protection in government securities at the average weighted annual yield rate set in the multi-price auction.
Legal and physical persons may purchase the government securities at primary placement via primary dealers on NASDAQ OMX Riga Stock Exchange or at an OTC market by direct trading.
The commission fees are shown on the NASDAQ OMX Riga Stock Exchange homepage www.nasdaqomxbaltic.com.
The settlement for the government securities in the primary placement in organised by the Latvian Central Depository.
Transactions with the government securities are made in compliance with principle of Delivery Versus Payment.
According to standard of ISMA – International Securities Market Association, the annual base for the calculation of the price, accrued interest, fixed interest and interest of medium-dated and long-dated bonds is 30E/360*. This means that each calendar month shall be regarded as 1/12 of 360 days in a year or 30 days, and the period of time from a particular date of a month until the same date of the next month shall be regarded as 30 days.
* – For all new issues of medium and long-term T-bonds after 1st July 2005 Act/Act day counting method is applied.
Time of Trading
The auctions of Latvian government securities according to the yearly schedule for government securities primary placement are usually held on Wednesdays at 12.00 – for competitive multi-price auctions and at 15.00 for non-competitive fixed rate amount auctions. Tap selling is organised on irregular basis and announcement is published no later than a business day before the planned offering. The settlements are usually made on Fridays, providing the funds on the buyer's TARGET2-Latvija by 9.30 a.m.
Trading for the Latvian government securities at NASDAQ OMX Riga Stock Exchange takes place every business day from 10.00 - 16.00.
Comparing to other forms of investments in the securities market of Latvia, the government securities are considered as investments of rather high liquidity because of larger outstanding amounts. The Bank of Latvia ensures the banks with possibility to re-finance the government securities with lombard-loans, moreover, REPO auctions are organised, as well as the central banks of the Eurosystem can use the securities toimplementat monetary policy.
Information on Latvian sovereign credit ratings might be found at the section “Rating”.