Slovenian Bonds Advance as Bad-Loan Transfer Deadline Expires

Slovenian bonds climbed for a second day as the government started moving toxic loans from the nation’s biggest lender and investor appetite for the country’s debt improved.

Dollar-denominated notes maturing October 2022 advanced, cutting the yield 25 basis points to 6.42 percent by 2:55 p.m. in Ljubljana, the lowest in almost two weeks, according to data compiled by Bloomberg.

The yield on the bonds is up 51 basis points since the end of May after concern the U.S. will curb stimulus triggered a rout in emerging-market assets. The first bad loans of about 100 million euros ($130 million) from Nova Ljubljanska Banka d.d. will be transferred to the bank asset management agency today at the latest, Prime Minister Alenka Bratusek said June 28.

“As some confidence returns to the market, it’s pretty clear that investors return to assets that were hit by the fall-out,” Gunter Deuber, head of research at Raiffeisen Bank International in Vienna, Austria, said by e-mail. “It makes sense that there is some return of buying interest for Slovenian bonds.”

Slovenia pledged to fix its deepening banking crisis with the transfer of bad loans to the government agency and a direct capital boost of about 900 million euros for its top three banks, including NLB, to avoid seeking an international bailout.

The government of Prime Minister Bratusek wants to swap 3.3 billion euros of bad loans from its three main banks for about 1.1 billion euros of state-guaranteed bonds, it said in its May overhaul program.

Market Distrust

Bratusek on June 28 called on the European Commission, the EU’s executive arm, to accelerate the approval of state aid for NLB bank and said the nation is late with the rebuilding of the financial industry.

NLB is set to transfer a total of 2 billion euros worth of toxic loans to the government agency, according to the bank asset management company.

The yield on the dollar-notes surged to a record 7.52 percent June 24 on concern the Federal Reserve will trim its stimulus program.

“The still fairly high yield levels on dollar bonds and their negative trend over the last months mirror a negative market risk assessment towards Slovenia and to some extent distrust in the problem-solving ability of the Slovenian politics,” Deuber from Raiffeisen said.

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