Serbian Yields Tame as Buyers Grab First 2013 Euro Bond

Serbia’s borrowing costs were unchanged in the first sale of euro-denominated debt this year as investor demand helps keep a lid on yields.

The government raised 30 million euros ($40 million) in a sale of three-year bonds today priced to yield 4.875 percent, equivalent to the coupon, or 27 basis points above the average bid rate, the Debt Management Agency in Belgrade said. Investors sought to buy 42.85 million euros worth of the debt.

Demand is generated by “risk appetite and a lack of investment alternatives” after Serbia secured financing for the first half of 2013 amid plans to raise $2 billion from Eurobond sales and $1 billion from a Russian loan this year, Hrvoje Stojic, chief analyst at Hypo Alpe Adria Bank DD in Zagreb, said in a note to clients today.

Today’s 4.875 percent average yield, which matched the rate at the last sale of euro-denominated debt on Dec. 31, compared with the 13.95 percent Serbia paid on Dec. 4 to borrow dinars over three years. Serbia’s neighbor Romania paid an average yield of 3.14 percent on three-year euro-denominated debt sold yesterday.

The debt agency has set a 10 percent coupon on all except one of its dinar debt sales in the first quarter. The exception is a Feb. 5 sale of a two-year bond with an annual coupon linked to the central bank’s benchmark rate, currently 11.5 percent, and an undefined margin on top. Serbia paid a 4 percent fixed margin on top of the central bank’s benchmark of 10.25 percent in an Aug. 1, 2012, debut offer of 10 billion dinars.

Yields Rise

The yields on Serbia’s five-year Eurobond stood at 4.153 percent and at 4.975 percent on the 10-year Eurobond at 1:23 p.m. in Belgrade, marking respective increases of 15 basis points and 20 basis points since touching their lowest level on Jan. 15, according to data compiled by Bloomberg.

While Serbia has outperformed regional peers in recent months, “renewed political noise, uncertain prospects of an IMF agreement and likely new issuance should cap performance,” Barclays Capital emerging-markets analysts in London including Eldar Vakhitov said in a Jan. 22 note to clients. They advised switching from Serbian five-year and 10-year bonds to Hungarian debt maturing in 2020 and 2021.

Serbia plans to sell a new Eurobond as soon as next month at a rate below 5 percent, regardless of whether it reaches an agreement beforehand with the International Monetary Fund, Finance Minister Mladjan Dinkic said in a Jan. 15 interview.

The government has pledged to cut its 2013 fiscal gap to 3.6 percent of gross domestic product from 6.7 percent last year. The IMF has said that’s too optimistic and that measures to reach the deficit target lack the necessary commitment.

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