Romania Foreign Bond Yields Fall to Record Low on New Issue Bets

Yields on Romania’s international bonds fell to a record low on the country’s plan to tap debt markets with a new issue to beef up the Finance Ministry’s reserves as local debt issuance lagged monthly targets.

The yield on Eurobonds due 2018 declined 9 basis points, or 0.09 percentage point, to 4.852 percent, the lowest on a closing basis since the securities started trading in July 2010. Yields on 10-year dollar debt were little changed at 5.63 percent, the weakest level since the instrument first traded in January, according to data compiled by Bloomberg.

Romania plans to sell bonds in euros in the next two months, Deputy Finance Minister Enache Jiru told Bloomberg on Aug. 23. Reserves with the Finance Minsitry, also known as financing buffer, depleted to 3.3 billion euros ($4.1 billion) in July from 4.9 billion euros in April as it repaid maturing debt and financed the budget deficit, the ministry said July 25.

“A Eurobond issue later in the fall will consolidate the central bank’s reserves and contain the upward trend in bond yields since the finance ministry will be in a position to reduce the supply of leu-denominated bonds on the local market in the fourth quarter,” analysts at Banca Comerciala Romana SA wrote in a report today. “This action however remains tentative since the investors’ are pretty much skittish these days.”

Romania has pledged to the International Monetary Fund it will maintain a buffer that can finance at least four months of its budget deficit.

Debt Sale

The ministry sold 1.4 billion lei ($394 million) in local debt this month against a target of 2.5 billion lei. It raised 1.4 billion lei in June, compared with the 3.5 billion lei it planned for the month. In July, it borrowed 1.6 billion lei against a plan of 2.25 billion lei.

The leu gained 0.3 percent to 4.4545 per euro at 2:51 p.m. in Bucharest, after appreciating 0.5 percent in the past five days.

The currency hit a record low of 4.6520 per euro on Aug. 3 after a referendum in July to impeach President Traian Basescu. That vote was invalidated on Aug. 21 by the country’s Constitutional Court as turnout was lower than required, paving the way for Basescu’s return to office on Aug. 28.

The cost of insuring against a Romanian default for five years using credit-default swaps was little changed at 393 basis points, below that of Italy at 457 basis points, according to data compiled by Bloomberg.

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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