Romania Bond Yields Climb to Two-Week High as Default Risk Jumps

Romanian Eurobond yields rose for a sixth day to the highest level in almost two weeks and the cost of protecting against default jumped as concern the global economy is weakening damped demand for riskier assets.

The yield on 2018 euro-denominated bonds climbed 17 basis points, or 0.17 percentage point, to 4.44 percent, the highest since Oct. 10, at 6:10 p.m. in Bucharest. Credit-default swaps rose 15 basis points, the most since July 23, to 235, based on data compiled by Bloomberg. The leu slid less than 0.1 percent to 4.5765 per euro.

Emerging-market stocks sank the most in two weeks and commodities tumbled as lower-than-forecast results from global companies fueled concern the global recovery is faltering. The average cost to insure government debt against default in eastern Europe, the Middle East and Africa rose eight basis points to 191, according to the Markit iTraxx SovX CEEMEA Index.

Default swaps increase as perceptions of creditworthiness deteriorate. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Romania’s central bank capped lending to commercial banks yesterday at its one-week repurchase agreement auction at 5 billion lei ($1.4 billion) compared with a 6 billion-lei limit on Oct. 15, to support the currency. The leu is facing depreciation pressures amid political unease ahead of general elections on Dec. 9. Lenders’ demand at the auction shrank to 12.7 billion lei from last week’s record high of 21.4 billion lei.

“The central bank limited once again the amount of funds pumped in the market through its weekly repo operations,” Bucharest-based analysts at Credit Europe Bank Romania SA wrote in a report. “The impact on the foreign-exchange rate was limited, as the local currency remains under selling pressures.”

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

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

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