Yields Drop on Serb Debt as Improved Economic Data Lure Buyers

Yields on Serbia’s domestic debt continued to drop in a Treasury bill sale as improved economic data and currency trades driven by rate differences lured investors.

The government sold the full offer of 10-billion dinar ($120.5 million) of 53-week Treasury bills, with yields falling by 75 basis points, or three-quarters of a percentage point, from last month, to 10.49 percent, the Debt Management Agency in the capital Belgrade, said in an e-mailed statement today. Investors’ bids amounted to 29.6 billion dinars.

“We see downside yield risks amid resurgent carry trades,” analysts at Zagreb-based Hypo Alpe-Adria-Bank DD, including Hrvoje Stojic, said in a note to investors before the auction. Borrowing costs have been declining amid a “lack of investment alternatives” as this year’s gross refinancing needs of around 17 percent of gross domestic product “are expected to be at least by half secured from abroad,” they said.

Premier Ivica Dacic’s seven-month-old government is paying 4.1 percentage points less on 53-week debt than in September 2012, when yields peaked at 14.59 percent. The only time Serbia paid less than 10 percent to raise dinars in the local market was between February and May 2010, according to central bank data.

The budget deficit narrowed 32 percent in January from a year earlier on improved sales tax collection and a public debt decline of 0.7 percent to 17.5 billion euros ($23.5 billion), or 59.9 percent of Serbia’s economic output, the government said yesterday.


“Stronger fundamentals” also support the Serbian dinar, which benefits from “a highly attractive carry” of some “0.9 percent per month,” Societe Generale emerging-market analysts including Benoit Anne in London, said in a note to investors today. They target the dinar at 108 to the euro in the next few months. The dinar traded at 111.6038 at 1:37 p.m. in Belgrade, according to data compiled by Bloomberg.

Dacic wants to narrow the budget gap to 3.6 percent of GDP from more than 6 percent in 2012 and plans to borrow $2 billion in foreign markets through Eurobonds in addition to a $1 billion-loan from Russia to finance the budget gap and repay debts.

Junk-rated Serbia sold $750 million worth of five-year notes in November and wants to sell a seven-year bond before it agrees to a new deal with the International Monetary Fund, Finance Minister Mladjan Dinkic told Bloomberg on Jan. 15.