Foreign bank participation in the MGS market

The month of November has been a truly busy time for the domestic bond market with various corporate bonds being issued together with the final Malta Government Stock (MGS) offering by the Treasury in which €426 million was raised. This is €24 million below the total permitted issuance of €450 million indicating the aggressive auctions placed by institutional investors. Following this latest issue, the overall amount of MGS raised this year totals €1.26 billion, a slight increase over the MGS issuance in 2024.

While there are still a number of bonds whose offer period is ongoing, it is positive to note that the three MGS’s on offer last week attracted demand of €103 million from retail investors (applications up to a maximum of €499,900). While this represents a decline from the amounts subscribed in both February and July of this year (averaging €150 million during each issue), it is very much in line with the allocation during the three offerings in 2024. Moreover, the amount raised from retail applicants of €103 million must be analysed within the context of the unprecedented issuance in recent weeks across the corporate bond market totalling just over €350 million as well as the very short offer period typical of MGS’s of less than a week.

The information published by the Treasury so far has not provided any indication on which was the most popular MGS within the retail investor category, i.e. whether the 5-year, the 10-year or the 15-year offering. Incidentally, both the 10-year MGS as well as the 15-year MGS on offer last week, namely the 3.4 per cent MGS 2035 and the 3.8 per cent MGS 2040, were identical (and indeed fungible) with those issued in July 2025) and also at the same price of 100 per cent (par) for each security. In July 2025, within the €155 million allotted to retail investors, the 10-year bond was only marginally more popular than the 15-year issue, so it would be interesting to gauge whether this was also the case in last week’s offering.

The statistical analysis published by the Treasury last Friday revealed some interesting data on the investor classification and pricing details of the competitive auctions for amounts in excess of €500,000.

In total, the bids submitted for the three MGS’s amounted to €439.5 million with the Treasury accepting €323 million split as follows: €106 million in the 5-year MGS, €130.5 million in the 10-year MGS and €86.5 million in the 15-year MGS.

Local credit institutions were allotted a total of €102 million with the 5-year MGS being the most sought-after at €67 million and the balance of €35 million in the 10-year offering. Incidentally, there were no bids lodged by local credit institutions for the 15-year MGS.

In last week’s auction, there was strong demand by international credit institutions (banks) with allocations totalling €166 million. In stark contrast to the pattern for local banks, the most popular instrument by the foreign banks was the 15-year bond with a total allocation of €82 million followed by €66 million in the 10-year offering and only €18 million in the 5-year MGS.

The participation by international investors is not a new phenomenon in the MGS market. Data published annually by the Central Bank of Malta reveals a steady increase in MGS held by non-residents. In fact, as at end of 2024, the amount of MGS held by international investors amounted to just over €1.6 billion or 18 per cent of the total MGS in issue of €9.1 billion. In total during 2025, European credit institutions subscribed for €295 million in MGS or 23 per cent of the total MGS issued. The additional allotment of €166 million in last week’s auction is a remarkable increase following the €77 million in July 2025 and €51.5 million in February 2025. This could potentially be evident of a new trend given Malta’s credit rating, strong economic performance and relatively low debt to GDP ratio compared to the EU average.

Another important aspect within the information published by the Treasury last Friday was the pricing of the various bonds within the competitive auction and mainly the reason for the total issuance of €426 million falling short of the maximum amount of €450 million.

The Treasury indicated that in the €106 million allotted to institutional investors in the 5-year MGS (the 2.55 per cent MGS 2030), the price range was wide with the highest bid at 100.05 per cent and a cut-off price of 98.23 per cent (YTM: 3.00 per cent). The weighted average price for accepted bids was of 99.00 per cent, which translates into a YTM of 2.80 per cent. Within the €106 million, a total of €67 million were allotted to local credit institutions with €18 million to European banks. Meanwhile, bids totalling €51.5 million were not accepted as the prices were below the level of 98.23 per cent.

A higher amount of €130.5 million was allotted in the 10-year bond (the 3.40 per cent MGS 2035) at prices ranging from a high of 100.05 per cent to a cut-off price of 97.19 per cent (YTM: 3.75 per cent). The weighted average price for accepted bids was of 98.1217 per cent, which translates into a YTM of 3.63 per cent. In this MGS, the allotment to European banks at €66 million exceeded that of local banks at €35 million. Other bids amounting to €50 million were not accepted as the prices were below the level of 97.19%.

Finally, within the 15-year bond, (the 3.80 per cent MGS 2040), a total of €86.5 million were allotted to institutional investors at prices ranging from a high of 98.50 per cent (compared to the offer price to retail investors of 100 per cent) to a cut-off price of 96.83 per cent (YTM: 4.086 per cent). The weighted average price for accepted bids was of 97.24 per cent, which translates into a YTM of 4.048 per cent. The large majority of the successful auctions were by European banks amounting to €82 million. Other bids totalling €15 million were not accepted as the prices were below the level of 96.83 per cent.

The different categories of investors applying for the recent MGS issue and the auction prices are important observations for the investing public. The increased participation by foreign banks is notable (totalling €295 million this year) and the auction prices at well-below the fixed price of retail investors is also significant. With the expected MGS issuance in 2026 of €1.9 billion (with around €1 billion required for refinancing existing MGS’s maturing next year), it is important to gauge participation by retail investors and local institutional investors to understand whether the Treasury will become increasingly reliant on international participation given the high MGS exposure already prevalent among local banks.

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