There were times in Estonian capital markets where there were Estonian bonds. Not the bonds that were there before the Second World War, but for example the foreign loan of Israel’s arms deal that Hoiupank restructured into Estonian government bonds.
Ever since, there have been no government bonds in Estonia, even though the Hüvitusfond’s bonds that were noted on the stock exchange market were very popular at the time.
According to the Senior Partner of Redgate Capital Aare Tammemäe, Estonian bond market has been developing in cycles.
„The first increase of registered emissions in Estonia was between 1994 – 1998, when on the market there were 7% obligations by Hüvitusfond, 10% five-year bonds by the Republic of Estonia, NIB and corporate bonds,“ he said. „Second increase was between 2004 – 2007, when banks, large companies, fast loans and the real estate developers played a big role in bond emissions.“
The third increase started again in 2012, when the amount of emissions was the smallest since 1995.
What has to be done to revitalise the bond market? The bond market can be divided into two: quality bonds and bonds with a high return, to which people also refer to as ’junk bonds’. Quality bonds can compete with bank deposits. The Republic of Estonia could be the issuer in the best case scenario, but the state has rather preferred to take loans from the banks over receiving the money from the bond market. As we are lacking the best issuer, we can look towards the bonds of Latvian government, which are publicly traded. The nominal of Latvian bonds is only 0,01 euros. It is completely another story whether it is simple or complicated to buy and sell Latvian government’s bonds from Riga stock exchange through Estonian banks, and how much would it cost to hold them. The total amount of Latvian government bonds on Riga stock exchange is 977 million euros.
Even ’junk bonds’ could have their own segment, which is currently filled with so-called OwnBanker (Isepankur) type of borrowing environments, where interested parties can put together their own loan portfolio.
„It would be easier and more convenient for anyone interested to buy high-yield bonds,“ said Tammemäe.
The problem with pension funds is that they are not able to find suitable bonds from our market.
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