Serb Bond Yields Drop to 3-Month Low on EU Nod for Entry Talks

Serbia’s benchmark bonds rallied, cutting the yield to an almost three-month low, as an accord with Kosovo boosted prospects for European Union membership.

The yield on the former Yugoslav republic’s dollar notes maturing in September 2021 declined 15 basis points, or 0.15 percentage point, to 5.08 percent by 2:17 p.m. in Belgrade, the lowest since Jan. 31. That compares with a 5.86 percent rate on 2022 dollar bonds from higher-rated euro-member Slovenia.

The European Commission said today it supports starting EU membership talks with Serbia and pre-accession negotiations with Kosovo, its former breakaway province, after the two nations reached a deal on future relations on April 19. Investors should have an overweight stance on Serbia bonds as the agreement is “credit positive,” Royal Bank of Scotland Group Plc said.

“Although full EU accession is at least five years away for Serbia, much of the economic benefits of membership will be realized during the course of accession talks and the required economic and social reforms that go hand in hand with it,” London-based RBS analysts Abbas Ameli-Renani and Demetrios Efstathiou in London wrote in a research note dated April 19.

The Serbian bond yield has slid from more than 7 percent before the EU granted the country the status of a candidate for membership in March 2012. Standard & Poor’s rates the debt at the third-highest non-investment grade of BB-, two steps below Croatia and six below Slovenia, data compiled by Bloomberg show.

A comparable Croat yield is down 73 basis points this month to 4.58 percent after it received on March 26 the final approval from the EU to become the bloc’s 28th member on July 1. Similar dollar bonds from the former Soviet republic of Georgia, rated on par with Serbia at S&P, yield 4.51 percent.

‘Big Positive’

The dinar gained as much as 0.5 percent against the euro today to its strongest intraday level in a month before paring the advance to 0.1 percent at 111.42. Societe Generale SA today repeated its recommendation to buy the currency on expectations it will gain to 108 per euro, according to a report.

“The latest news that Serbia and Kosovo may have reached an agreement is a clearly big positive for dinar assets,” SocGen analysts Esther Law in London and Dragoslav Velickovic in Belgrade wrote in the research note.