Foreign bank participation in the MGS market

Article #930 by Edward Rizzo - Published Weekly

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% MGS 2035 and the 3.8% MGS 2040, were identical (and indeed fungible) with those issued in July 2025) and also at the same price of 100% (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% 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% 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% MGS 2030), the price range was wide with the highest bid at 100.05% and a cut-off price of 98.23% (YTM: 3.00%). The weighted average price for accepted bids was of 99.00%, which translates into a YTM of 2.80%. 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%.

A higher amount of €130.5 million was allotted in the 10-year bond (the 3.40% MGS 2035) at prices ranging from a high of 100.05% to a cut-off price of 97.19% (YTM: 3.75%). The weighted average price for accepted bids was of 98.1217%, which translates into a YTM of 3.63%. 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% MGS 2040), a total of €86.5 million were allotted to institutional investors at prices ranging from a high of 98.50% (compared to the offer price to retail investors of 100%) to a cut-off price of 96.83% (YTM: 4.086%). The weighted average price for accepted bids was of 97.24%, which translates into a YTM of 4.048%. 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%.

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.

  Print This Page

The article contains public information only and is published solely for informational purposes. It should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this article. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (“Rizzo Farrugia”) is under no obligation to update or keep current the information contained herein. Since the buying and selling of securities by any person is dependent on that person’s financial situation and an assessment of the suitability and appropriateness of the proposed transaction, no person should act upon any recommendation in this article without first obtaining investment advice. Rizzo Farrugia, its directors, the author of this article, other employees or clients may have or have had interests in the securities referred to herein and may at any time make purchases and/or sales in them as principal or agent. Furthermore, Rizzo Farrugia may have or have had a relationship with or may provide or has provided other services of a corporate nature to companies herein mentioned. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security mentioned in this article. Neither Rizzo Farrugia, nor any of its directors or employees accepts any liability for any loss or damage arising out of the use of all or any part of this article. Additional information can be made available upon request from Rizzo, Farrugia & Co. (Stockbrokers) Ltd., Airways House, Fourth Floor, High Street, Sliema SLM 1551. Telephone: +356 2258 3000; Email: info@rizzofarrugia.com; Website: www.rizzofarrugia.com © 2021 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved. This article may not be reproduced or redistributed, in whole or in part, without the written permission of Rizzo Farrugia. Moreover, Rizzo Farrugia accepts no liability whatsoever for the actions of third parties in this respect.

This article was produced by Edward Rizzo, Director at Rizzo Farrugia, which is a company licensed to undertake investment services in Malta by the MFSA under the Investment Services Act, Cap. 370 of the Laws of Malta and a member of the Malta Stock Exchange. The company’s registered address is at Airways House, Fourth Floor, High Street, Sliema SLM 1551, Malta.