Demand for Bahrain sovereign debt remained strong during the first quarter of 2011, the Central Bank of Bahrain (CBB) has announced.

The domestic issues of government debt, which the Central Bank manages on behalf of the Ministry of Finance, have remained heavily oversubscribed.   Although interest rates rose slightly, they have now started to trend downwards again and remain at historically low levels, a CBB statement said.

Between January and the end of March 2011, the CBB issued 3 month Treasury Bills at an average coverage of 283 per cent, and 6 month bills at an average coverage of 340 per cent. Demand for Shariah-compliant securities was even stronger with the coverage of both 3 and 6 month instruments exceeding 500 per cent.

Demand for debt with longer maturities also remained strong. The CBB was able to issue 12 month government treasury bills at a coverage of 211 per cent, and recently issued a 5 year maturity Islamic Leasing Sukuk in the local market with a value of BD 200 million ($530 million) and a rate of return of 5.5 per cent.

In addition to strong domestic demand, the kingdom has also seen a rapid recovery in the price of its US dollar benchmark international issue, the 2020 Government Development Bond. After reaching a high of 6.91 per cent on March 15, the yield of this bond has declined by 1.11 per cent from a high of 6.91 per cent to 5.80 per cent, its lowest level since February 2.

“The strong domestic demand for Kingdom of Bahrain sovereign debt is testament both to the depth and liquidity of our local markets as well as market participants’ confidence in the kingdom’s economic management. This is also increasingly being recognised in international markets, as reflected in the rapid recovery in the price of Bahrain’s benchmark sovereign issue,” stated Sheikh Salman bin Isa al Khalifa, CBB’s executive director of Banking Operations.-TradeArabia News Service