Slovenian Crisis to Negatively Weigh on Bonds: UniCredit

Slovenia’s risk of holding early elections is hurting demand for government bonds, UniCredit Bank AG said.

The euro-region nation plunged into turmoil after the anti-corruption agency said Prime Minister Janez Jansa failed to declare all his private assets, prompting his coalition partners to seek his resignation. Jansa has yet to address the issue.

“The ongoing political crisis is weighing negatively on long-end Slovenian bonds,” Carlos Ortiz, economist at UniCredit Bank in London, wrote in a note to clients today. “We see such penalization as temporary, with yields back on a declining path once the political uncertainty has dissipated.”

Slovenia may see its overhaul drive delayed as the early vote prospect rises. Jansa’s administration, which took power less than a year ago, pushed through a bank recapitalization plan, a creation of a wealth fund and changes to the pension system to avoid seeking a bailout.

The yield on the notes maturing in 2022 rose 13 basis points yesterday to a two-week high. Today, the yield was little changed, dropping one basis point to 4.779 at 10:25 a.m., according to data compiled by Bloomberg.

“The appointment of a successor by Jansa’s party is clearly the best case scenario as this would guarantee the stability of government and enable it to push through reforms,” Ortiz said. “A strong coalition agreement following the last election may well facilitate this, but early elections can’t be excluded.”

The Adriatic nation is in a better fiscal and financial position than most of its periphery peers, Ortiz said.

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