Slovenia Yields Drop to Six-Week Low as Fed Trumps Banking Delay

Slovenia’s benchmark bonds rallied, pushing the yield to the lowest level in six weeks, as investors looked past a delay in the government’s effort to fix the bank industry amid improving global sentiment.

The yield on the 2022 dollar-denominated notes from the first post-communist country to join the euro region dropped 19 basis points, or 0.19 percentage point, to 6.027 percent at 3:46 p.m. in Ljubljana, the least since June 4. That compares with a yield of 5.29 percent on 2023 dollar bonds from Croatia, which joined the European Union at the start of the month.

Slovenia is delaying the fix of its ailing bank industry that pushed the country to the brink of a bailout after the rescue of Cyprus in March. Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. central bank’s asset purchases may be reduced more quickly or expanded as economic conditions warrant, reassuring investors he would not cut off the stimulus quickly if growth disappoints.

“Investors have more or less priced in a delay in the implementation” of the bad loan program, Abbas Ameli-Renani, an emerging-markets strategist at Royal Bank of Scotland Group Plc in London, said in an e-mail today. “Much of the yield tightening that we have seen in recent trading sessions has been more in line with global market conditions.”

The value of bad-loans that will be transfered to a government agency is being scrutinized by external reviewers hired by the government last month.

Not Worried

Bostjan Jazbec, Slovenia’s new central bank Governor that took over from Marko Kranjec yesterday, said in an interview on July 15 he isn’t worried about the delay of bad-loan transfers by a “couple of months.”

“I expect the news of further delays in the transfer of bad assets as well as significant fiscal slippage in the first half of the year to put pressure on Slovenian bonds, relative to that of other sovereigns over the next few weeks,” Ameli-Renani of RBS said.

The cost to insure Slovenia’s bonds for five years using credit-default swaps dropped 11 basis points to 322, the lowest since June 19. That compares with costs of 310 for Croatia, 193 for Romania and 92 for fellow euro-member Slovakia.

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