Slovenia eased concern that it will be the next euro-area state to need a bailout as investors scooped up twice the targeted amount in a debt sale yesterday. The country’s bonds surged and its default risk tumbled.
The government sold 1.1 billion euros ($1.43 billion) of 18-month bills, compared with its 500 million-euro target, the Finance Ministry in Ljubljana said in an e-mail. The yield was 4.15 percent, compared with 3.99 percent in December 2011. It also repurchased 510.7 million euros of notes at a yield of 3.99 percent after planning to buy as much as 855 million euros.
State-controlled banks including the country’s two largest, Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. (KBMR), signaled they would participate in the biggest auction in six months as Prime Minister Alenka Bratusek’s new government tries to convince markets Slovenia won’t follow five other euro members in seeking international assistance.
“This T-bill auction was successful and is likely to ease the pressure on Slovenian assets,” said Jaromir Sindel, an economist at Citigroup Inc. in Prague. Still, in the short-term, specific asset-sale proposals, a stability program to address the European Commission’s comments on economic imbalances and the creation of a bad bank may be more important, he said.
Slovenia’s dollar bonds due in October 2022 gained after the sale, with the yield falling 36 basis points to 5.95 percent yesterday and was little changed today at 9:34 a.m. in Ljubljana, according to data compiled by Bloomberg.
The cost to insure Slovenian government bonds against non- payment for five years using credit default swaps tumbled 30 basis points, the steepest fall among emerging-European nations tracked by Bloomberg, to 342, according to data compiled by Bloomberg. CDSs declined 1 basis point to 341 at 9:34 a.m. in Ljubljana. The price had jumped 141 basis points since the start of the year through April 16 on concern investors would make Slovenia the sixth euro-area country after Cyprus to seek a bailout.
“The successful debt sale is in line with what we had expected although the extent of the demand comes as a surprise,” Abbas Ameli-Renani, an emerging-markets economist at Royal Bank of Scotland Group Plc in London, wrote in a note to clients. The “auction takes pressure off the government’s finances for the coming months and possibly even until the end of the third quarter or early fourth quarter.”
The ex-Yugoslav republic, which last sold foreign debt in October and missed a target for T-bill sales by almost half at an auction on April 9, turned to local investors after a second recession since 2009 caused a banking crisis and fueled speculation the nation would follow Cyprus in seeking aid.
“France has confidence in what’s started in Slovenia, which is a clean up of its budget and courageous steps to deal with the banking system and improve competitiveness” French President Francois Hollande said in Paris yesterday after meeting his Slovenian counterpart, Borut Pahor. “We should provide Slovenia with what it’s asking for, which is confidence.”
Bratusek told lawmakers yesterday that while urgent measures needed to be taken to address Slovenia’s woes, the country doesn’t need a bailout. The government will present a plan to narrow the budget gap and fix the banks within a month, a time frame agreed with European leaders in Brussels, she said.
“Banks are the priority and if they don’t start lending once their balance sheets are cleaned up, we’ll have done nothing,” she said.
Slovenia, which adopted the euro in 2007, sold 12-month notes at a yield of 2.99 percent at its last T-bill auction on April 9, up from 2.02 percent for similar bills on Feb. 12, Finance Ministry data show.
BlackRock Inc. (BLK), the world’s biggest money manager, said it would boost its holdings of Slovenian bonds if the nation successfully overhauled its troubled banks. Yesterday’s auction of 18-month securities will draw “very good” demand, said Scott Thiel, deputy chief investment officer of fixed-income securities at BlackRock in London.
Foreigners may have accounted for as much as half the demand at the auction, according to Milan Smiljanic, head of trading at Perspektiva d.d. in Ljubljana.
“The fact that the ministry accepted foreign demand and offered a slightly higher rate is a step in right direction in order to calm the markets,” he said. “After the auction, the Slovenian debt curve immediately responded with lower yields.”