Romania to Lure Investors as Bond Risk Drops, BNP Paribas Says

Romania is set to win back investors who sold the country’s assets during its political turmoil last month as International Monetary Fund support cuts government bond risk, according to BNP Paribas SA.

Investors should sell Romania’s five-year credit default swaps against the SovX CEEMEA index of peers in emerging Europe, the Middle East and Africa. Improving creditworthiness is set to cut the extra cost of insuring the Balkan country’s debt over the benchmark to 90 basis points from 145, the bank said in a report today.

The IMF and Romania reached a staff-level agreement to unlock the next tranche of a precautionary 5 billion-euro ($6.2 billion) loan, the Washington-based lender said on Aug. 14 after a review of the country’s loan accord. The leu is slightly undervalued and has scope to appreciate, the IMF said that day.

“The IMF’s comments about the undervaluation of the leu were particularly helpful in restoring confidence in leu assets,” Bartosz Pawlowski, BNP’s London-based chief strategist for the region, said in the report. The IMF review “should be a significant trigger for investors who became concerned about the credit of Romania following the political turmoil,” he said.

Romania’s default swaps were little changed today at 391 basis points, near the lowest level in more than three months. The country’s 2022 dollar-denominated bonds climbed for a fifth day, bringing the yield’s decline this week to 32 basis points, or 0.32 percentage point.

The constitutional court will meet Aug. 21 to debate whether a July 29 vote to impeach suspended President Traian Basescu is valid. The power struggle between Basescu and Prime Minister Victor Ponta in the past two months pushed the leu to an all-time low of 4.6520 per euro on Aug. 3. The Romanian currency has gained 1.1 percent since the IMF statement.

The “recovering currency and cheap valuations should attract inflows,” Pawlowski said.

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