Serbia’s Dinar Bond Market Attracts Foreign Buyers as Debt Funding Diversifies

Foreign investors increased their exposure to Serbia’s dinar-denominated government debt during the first half of 2026, but their presence remains well below pre-pandemic levels despite higher yields, exchange-rate stability and Serbia’s investment-grade rating from S&P.

Non-residents held RSD 124.3 billion, equivalent to approximately €1.06 billion, of dinar government securities at the end of June. Their share of the outstanding dinar portfolio rose to 15.2%, compared with 12.2% in 2025, which was the lowest level in roughly a decade. The recovery remains limited when measured against the end of 2019. Foreign investors then held approximately RSD 233 billion, or close to €2 billion, and accounted for more than 30% of Serbia’s government-securities portfolio.

Foreign participation has consequently regained about three percentage points from last year’s low but remains at roughly half of its 2019 proportion. In nominal terms, non-resident holdings are still about RSD 109 billion below the pre-pandemic level, without taking into account inflation or the expansion of the government’s overall financing requirements.

Government debt rises to RSD 4.847 trillion

Serbia’s central-government debt increased by RSD 16.2 billion, approximately €138 million, during June, reaching RSD 4.847 trillion, or around €41.3 billion.

Central-government debt stood at 43.8% of GDP, while general-government debt reached 44.1% of GDP. The currency composition remains more significant than the headline debt ratio. Foreign currencies represented 79.1% of public debt at the end of June. Euro-denominated obligations accounted for 62.4%, US dollars for 11.3%, Special Drawing Rights for 5.3%, and other currencies for approximately 0.2%. Dinar obligations accounted for 20.9% of the portfolio, up from 20.3% in May.

The increase followed the reopening of Serbia’s five-year benchmark bond in June. The government sold RSD 27.61 billion after receiving approximately RSD 31.04 billion in bids, exceeding the initially advertised reopening amount. The bond has a 4.5% annual coupon, matures in July 2030 and was issued at a 5% yield to maturity.

Higher June yield strengthens bond demand

The June result was significantly stronger than the preceding reopenings of the same bond. Serbia sold RSD 15.97 billion in February at a 4.55% yield, followed by RSD 2.67 billion in March at the same yield and only RSD 2.16 billion in May at 4.59%. The substantially larger June demand came after the yield increased to 5%, indicating that pricing remains an important factor in attracting international capital.

For foreign investors, the nominal 5% return on dinar debt must compensate for Serbian inflation, possible currency depreciation, limited secondary-market liquidity and the alternative returns available from other emerging-market or euro-denominated securities.

The premium over Serbian euro debt, which yields in the mid-4% range, is relatively narrow. The dinar market’s attraction is supported in part by the currency’s prolonged stability against the euro. That stability is supported by the National Bank of Serbia’s managed exchange-rate regime and substantial foreign-exchange reserves. While the framework has reduced observed exchange-rate volatility, investors continue to face currency exposure and monitor Serbia’s current-account position, energy-import requirements, foreign direct investment inflows and the central bank’s ability to intervene.

Investment-grade status expands investor access

Serbia’s sovereign credit profile has improved compared with 2019. S&P rates Serbia BBB- with a stable outlook, placing the country at the lowest investment-grade level. Fitch assigns BB+ with a positive outlook, one level below investment grade, while Moody’s rates Serbia Ba2 with a stable outlook.

S&P’s upgrade in October 2024 increased the potential investor base because certain regulated funds and institutional mandates are restricted to investment-grade securities. The impact has been more apparent in Serbia’s international Eurobond transactions than in its dinar market. Foreign investors willing to accept Serbian sovereign risk can still favour euro- or dollar-denominated securities because those instruments eliminate direct dinar exposure and generally offer deeper secondary-market liquidity.

Serbia’s international borrowing in April 2026 illustrated the difference. The sovereign completed its inaugural multi-currency international issue with three tranches worth approximately €3 billion equivalent, while total investor demand exceeded €8 billion. The transaction comprised a €1 billion five-year Eurobond with a 4.25% coupon, a €900 million 12-year green bond carrying a 4.875% coupon, and a $1.25 billion 10-year bond. The dollar liability was immediately swapped into euros, producing an effective euro coupon of approximately 4.66% and limiting Serbia’s exposure to movements between the US dollar and euro.

International bond proceeds support liability management

Part of the April proceeds financed the repurchase of €870.76 million of the Eurobond maturing in May 2027. Approximately €1.13 billion of that issue remains outstanding and must be repaid or refinanced at maturity. The transaction demonstrated strong international demand for Serbian external debt while contributing to a substantial increase in nominal government debt during May. Central-government debt rose by almost €2 billion that month, although some of the additional borrowing represented pre-financing and liability management rather than an immediate deterioration in the underlying fiscal position.

June brought a different balance of borrowing and repayments. Serbia raised RSD 27.6 billion through dinar securities and received approximately RSD 10.9 billion through project and programme loans, while repaying RSD 36.7 billion of existing obligations. The government subsequently announced that it did not intend to conduct additional government-securities auctions during the third quarter of 2026, after largely completing its financing programme for the first half of the year.

Eurobonds remain Serbia’s largest creditor category

Serbia is simultaneously using several financing channels. International Eurobonds, worth almost €12.5 billion, form the largest individual creditor category. Dinar government securities account for close to €7 billion, while commercial-bank loans amount to approximately €5.3 billion.

Debt owed to the Export-Import Bank of China stood at approximately €2.77 billion after Serbia repaid around €60 million in June. China Exim remains Serbia’s fourth-largest individual creditor following years of bilateral financing for transport, energy and infrastructure projects. Serbia also repaid nearly €90 million to the International Monetary Fund, reducing outstanding IMF obligations to approximately €2.1 billion.

The resulting financing structure combines commercial-bank loans, bilateral project financing, IMF obligations, international bonds and domestic securities, each with different maturities, covenants, interest-rate structures and refinancing requirements.

Dinar debt remains below earlier levels

Greater foreign participation in dinar securities can reduce the need for new foreign-currency liabilities while helping establish a domestic yield curve for corporate bonds, municipal borrowing and longer-term financial products.

Serbia remains well below its earlier progress in increasing the local-currency share of public debt. Dinar debt exceeded 30% of the portfolio in 2020, before declining as the government increased its reliance on international markets and foreign-currency project loans. At 20.9%, the current dinar share is close to levels recorded roughly a decade ago. Increasing issuance alone would not be sufficient to deepen the market. Serbia would need larger benchmark bond lines, predictable auction schedules and active secondary-market trading that allow international investors to establish and unwind positions without materially affecting prices.

Foreign institutional investors also require reliable repo arrangements, transparent pricing, suitable custody infrastructure and safeguards against excessive liquidity concentration. Secondary-market turnover in Serbian government securities reached RSD 153.2 billion in the first six months of 2026, with dinar instruments representing 83.8% of the total.

Banks remain important domestic buyers

Serbian banks continue to provide a core domestic investor base because government securities can be used for liquidity management, collateral and regulatory purposes. Their participation gives the government a relatively stable source of funding, but also increases the connection between sovereign borrowing and the banking system. Large allocations to government securities can reduce the amount of bank balance-sheet capacity available for corporate lending and infrastructure financing.

A larger foreign investor base could reduce this concentration, although international portfolio capital can also leave quickly during geopolitical shocks, global interest-rate repricing or regional currency pressure. The decline in foreign holdings after 2019 demonstrated that external demand for local debt can weaken even when domestic sovereign fundamentals remain comparatively stable.

Maturity profile limits near-term refinancing pressure

Serbia’s domestic debt maturity schedule provides some protection against an immediate refinancing shock. No significant dinar bond repayments are expected during the next approximately 18 months. Around RSD 155 billion falls due during the following six-month period, followed by another RSD 135 billion between mid-2029 and mid-2031. The largest maturity block, approximately RSD 525 billion, falls due after that period.

Euro-denominated domestic securities have an earlier schedule. Approximately €221 million is due within the next six to nine months, followed by another €101 million by mid-2027. Around €1.2 billion matures after mid-2031. The maturity structure gives the Public Debt Administration flexibility to combine domestic auctions with international, bilateral and multilateral financing rather than issuing securities solely to cover immediate redemptions.

Borrowing costs remain above pre-tightening levels

Interest costs remain an important consideration even though Serbia’s debt-to-GDP ratio is around half the EU average. The sovereign continues to pay a higher risk premium than core European borrowers. Recent euro and dinar securities have carried coupons in the 4.25–5.1% range, substantially above the exceptionally low borrowing costs available before the global monetary tightening cycle.

This increases the importance of the economic returns generated by debt-financed public investment. Transport, energy, environmental and industrial infrastructure can provide measurable economic and fiscal effects, while projects with weak returns, persistent cost overruns or limited transparency create greater pressure on debt sustainability.

The June increase in foreign holdings shows that non-resident investors remain willing to enter Serbia’s dinar market when yield and currency expectations are favourable. Yet holdings of RSD 124.3 billion remain substantially below the RSD 233 billion recorded at the end of 2019. The domestic bond market therefore continues to rely heavily on Serbian banks and institutional investors, while international investors retain a stronger presence in Serbia’s euro- and dollar-denominated debt markets than in local-currency securities.