August 23, 2016 / 1:46 PM / 3 years ago

Yields on Bosnian region's three-month T bills turn negative

SARAJEVO, Aug 23 (Reuters) - Yields on three-month treasury bills issued by Bosnia’s autonomous Bosniak-Croat Federation turned negative on Tuesday as banks snapped up the paper as a cheaper alternative to keeping money at the central bank.

The region raised its target of 20 million Bosnian marka ($11 mln) to plug a budget gap, with the average yield falling to -0.006 percent from 0.19 percent at the previous sale of the three-month paper in April.

Investors, mostly banks, placed bids for 51.5 million marka against 20 million marka on offer, data from the regional Finance Ministry showed.

Bosnia’s central bank introduced a fee in April for banks’ surplus reserves equal to the European Central Bank’s 50 percent interest rate on commercial bank deposits, which is aimed at boosting lending.

Investors, mainly banks, have since then been buying government debt as it is less costly than keeping their surplus reserves with the central bank, a finance ministry official told Reuters.

Bosnia’s two autonomous regions, the Federation and the Serb Republic, have a combined budget deficit of about 1 billion marka, and badly need IMF cash to help cover their financing needs. The IMF froze a previous financing programme last year because of Bosnia’s delays in carrying out economic reforms, which have also kept the region from getting a new loan from the IMF.

However, Bosnian officials now hope the IMF’s Executive Board will approve a three-year 550 million euro ($615 mln) loan after they signed a letter of intent with the IMF earlier this month. (Reporting by Maja Zuvela; Editing by Susan Fenton)

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