The issuance, which refinances maturing short-term bonds, drew solid investor interest after a May auction of 10-year bonds saw more modest demand than previous offerings.

The bonds were issued under a short-term program approved by the finance minister in 2020, allowing bonds with maturities of up to 12 months to be issued repeatedly, with the interest rate depending on market conditions. The issuances are intended to ensure the smooth management of the state's cash flows, and short-term bonds are offered only to professional investors.

SEB financial markets risk consultant Erik Laur said the cost of money in Europe affects governments' borrowing costs, just as the six-month Euribor affects homeowners.

"The cost of short-term financing has risen by approximately 0.5 percentage points in six months," Laur said. "This means that to raise €373 million for six to 12 months, the state will have to pay an estimated €1–2 million more in interest than if the same amount had been borrowed six months ago."

He added that the yields achieved were not historically high for Estonia. "Just three years ago, bonds with a similar maturity had to offer yields of more than 4 percent to attract investor interest."

Laur said Estonian government bond auctions have historically been very successful, with issuances generally seven to ten times oversubscribed. But investor interest in the 10-year government bonds issued in May was more modest, with that issuance only slightly more than twice oversubscribed.

"The main reason was probably that the bonds were issued under local law. Today's auction suggests that Estonian government bonds remain attractive to investors," Laur said.

"The yield achieved at the auction also points to continued interest. Historically, the Estonian state has often been able to borrow at a lower rate than the Euribor rate for the corresponding maturity, and this issuance was no exception."

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