YEREVAN, September 7. /ARKA/. The authors of the study “Free Lunch in Yerevan: An Arbitrage Anomaly in the Armenian Bond Market” draw attention to the unusual ratio of bank and sovereign bond yields for the debt market.
According to the study, the Armenian government Eurobond maturing in September 2029 had an estimated yield of approximately 5.31% as of September 2, based on the average market quotation.
Meanwhile, the yield on Inecobank’s dollar bond maturing in April 2029 was approximately 4.88%, while comparable issues from Armeconombank, Converse Bank, and ACBA Bank ranged from 4.97% to 5.26%.
The researchers found an even more significant gap for bonds maturing around 2030–2031. The yield on Armenia’s government Eurobond maturing in February 2031 was approximately 5.85%, while
the yield on one of ACBA Bank’s issues maturing in August 2030 was estimated at 4.51%. The difference was 134 basis points.
Another ACBA Bank issue maturing in January 2031 yielded approximately 5.12%, while Ameriabank bonds maturing in April 2031 yielded approximately 5.43%.
The authors note that government bonds typically serve as a benchmark for the domestic debt market, while corporate and bank securities, all other things being equal, should generally provide investors with additional returns for taking on additional credit risk. However, in certain segments of the Armenian market, the opposite is true.
KK Partners also compared Armenian bank bonds with those of major US and European banks.
In the dollar sample, the analysis covered 67 issues of Armenian banks and 60 bonds of major American banks. The researchers found a significantly wider spread of yields for Armenian securities relative to the estimated yield curve, while bonds of American banks were grouped noticeably more closely.
According to the authors, this may indicate that individual Armenian bonds are being priced by the market without a consistent pricing logic.
For example, the yield on ACBA Bank’s August 2030 issue was approximately 4.51%, while bonds of JPMorgan, Bank of America, and Morgan Stanley of roughly comparable maturities yielded approximately 4.95-5.13%.
A similar pattern is observed in the euro. Bonds from BNP Paribas, Deutsche Bank, and Société Générale with remaining maturities of approximately one to two years yielded around 2.90-3.30%, while comparable issues from Ameriabank, Armswissbank, and Inecobank yielded around 2.05-3.00%. In some cases, the difference exceeded 80-90 basis points.
KK Partners attributes the potential for such price discrepancies to persisting for a long time, in part, due to the limited availability of arbitrage mechanisms in the Armenian capital market. Specifically, the authors point to the lack of widely available short selling and derivatives.
In developed markets, such discrepancies typically attract arbitrage investors, whose trades contribute to price convergence. In the Armenian market, the limited availability of such transactions, according to KK Partners, allows the anomalies to persist for significantly longer.
The study focuses primarily on maturity dates and market yields and does not provide a full comparison of each bond, taking into account liquidity, seniority, collateral, tax treatment, and other contractual terms that may also influence pricing.
The authors dubbed the identified situation “Free Lunch in Yerevan,” viewing it as a potential arbitrage anomaly and simultaneously as an argument in favor of further development of trading infrastructure and instruments in the Armenian capital market.
