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They are a lot of questions about the price of a bond or its yield.

Mine is specifically about the interest rate (the coupon):
How does a government (or its central Bank) determine the price of the coupon when issuing a new bond? Mine is specifically about the interest rate (the coupon): How does a government (or its central Bank) determine the price of the coupon when issuing a new bond?

Why would a country want to pay a 1% coupon if few month before they had a negative 0 fees debt? (assuming a 0% or negative interest rate)

Is it related to the bank rate (EONIA/ESTER) or the "urgency" for the government to issue more debt at a given time?

Edit: the charts I linked was yield instead of coupon gross value, thank you @quid for noticing.

politinsa
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  • Slight relation to personal finance, but really the factors that go into determining governmental rates is politics that is hopefully driven by an economic strategy. Different governments with different objectives, in different economic positions and with different understandings will set different rates. – Grade 'Eh' Bacon May 31 '21 at 14:46
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    Is this chart yield or is it issued coupon rate? As your question indicates you’re aware of the difference but I think that’s a yield chart not a coupon at issue chart. – quid May 31 '21 at 15:38
  • As this question is closed I link here the same question on economics.stackexchange https://economics.stackexchange.com/questions/44260/how-are-sovereign-bond-interest-rates-determined/44261#44261 – politinsa Jun 01 '21 at 22:09

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New bonds are almost always issued in auctions. So the coupon rate is determined by the lowest rate that enough investors will take in order to sell whatever amount of bonds the country wants to sell. If a country wants to sell $10 M in bonds, for example, and investors bid to buy $2.5 M @ 0.125%, $5 M @ 0.25%, and $2.5 M @ 0.275%, the bonds will be issued at 0.275% (every investor gets the same price if their bids are accepted).

Most countries sell bonds on a regular schedule. You can look here for example for the issuance calendars for the various EU member nations. Barring something exceptional happening in the market, countries are generally going to need regular debt issuances to fund their ongoing operations and aren't usually trying to time the markets.

Justin Cave
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  • Note to OP that this implies new issuances are auctioned off very close to current market prices – EDS May 31 '21 at 17:20