Romania sold less debt than planned at an auction today as investors demanded higher yields after the central bank capped funding for lenders for the second time this month and accelerating inflation posed a risk to fixed-income returns.
The Finance Ministry sold 625 million lei ($177 million) of 11-month Treasury bills, less than the 1 billion lei targeted. It rejected offers from investors who demanded yields higher than the average 6.08 percent paid at today’s sale, the bank said in an e-mailed statement. Bids came in at 1.6 billion lei.
The bank limited its lending at the one-week repurchase agreements auction to 6 billion lei today to support the leu as commercial banks’ demand increased to a record high of 21.4 billion lei. The currency had traded to a 2-month low before the bank capped funding on Oct. 8. Romania’s inflation rate rose to 5.3 percent in September, the highest in more than a year.
The increase in yields results from “a combination of tighter liquidity and increasing inflation” which have “put leu bonds under pressure,” traders at Vienna-based Erste Group Bank AG said in a note to clients today.
The last time Banca Nationala a Romaniei cut repo lending was on Aug. 6 and it followed through with lower funding for lenders for the rest of the month, which in turn led to the currency gaining 2.6 percent in August.
The leu weakened 0.2 percent to 4.5732 per euro by 4:26 p.m. in Bucharest, depreciating for a second day.
The yields on 2018 euro-denominated bonds were little changed at a record low of 4.097 percent, according to data compiled by Bloomberg.
The average yield at today auction was below the estimates of analysts from Erste Group Bank AG, Piraeus Bank Romania SA and ING Bank Romania SA of 6.2 percent to 6.25 percent. That’s higher than the 6.02 percent and 5.53 percent paid on similar-maturity bills auctioned on Oct. 8 and July 9, respectively, according to central bank’s data.