Leu Climbs to One-Year High on Romanian Entry to JPMorgan Index

Romania’s leu strengthened to its highest level in a year after JPMorgan Chase & Co. said the country’s domestic bonds are eligible for its emerging-market government bond index.

The currency advanced 0.1 percent to 4.3355 per euro by 11:30 a.m. in Bucharest, after adding as much as 0.4 percent to the highest intraday level since Jan. 30 last year. The yield on Romania’s June 2019 euro-denominated bonds slid one basis point, or 0.01 percentage point, to 3.78 percent.

The exchange rate soared 1 percent yesterday, the most since Aug. 6, after JPMorgan said Romania’s domestic bonds would be added to its GBI-EM Index series from March 1, spurring expectations of orders from fund managers seeking to replicate the benchmark gauge.

“Since yesterday’s announcement was made after the home market closed, the central bank had no chance to react to the rapid appreciation,” Dan Bucsa, a London-based economist at UniCredit SpA, wrote in a note today.

Inclusion in the index would be phased over a three-month period ending May 1, JPMorgan said in a note to clients yesterday. Romania’s weighting on completion is estimated at 0.54 percent of the GBI-EM Global Diversified index. Its entry is “subject to final determination,” JPMorgan said.

The central bank, which has restricted its supply of leu at its weekly repurchase auctions since October to help prop up the currency, increased the limit to 6 billion lei ($1.8 billion) on Jan. 14 from 4 billion lei a week earlier.

While the central bank is unlikely to “hint at any desired euro/leu level nor to strongly intervene to force the leu to depreciate significantly,” it prefers a more stable currency closer to 4.4 per euro, Bucsa said.

Before it's here, it's on the Bloomberg Terminal.