Latvia Undercuts Poland With Longest Bond at Lower Yields

  • Baltic nation sells 650 million euros of bonds due 2036
  • Investors take less than half the yield Poland paid last month

Latvia returned to international capital markets for the first time this year with bonds that carry the country’s longest-ever maturity.

The Baltic nation sold 650 million euros ($741 million) of notes due in 2036 at 50 basis points above the mid-swap rate, according to a person familiar with the deal and data compiled by Bloomberg show. The yield was down from an initial guidance in the 60 basis-point area and less than half the level Poland, whose credit score is one level higher at Moody’s Investors Service, paid a month ago.

Borrowing costs for Latvia, which joined the euro group of nations in 2014, have tumbled to record lows this year as the European Central Bank increased stimulus measures including an unprecedented bond-buying program to shore up the region’s economy. The country’s growth is forecast at double the pace of the euro area while its budget deficit is seen at 1.3 percent of gross domestic product, compared with a 3 percent shortfall for Poland, according to data compiled by Bloomberg.

“I regard Latvia as a stable credit, the bond is ECB eligible and was relatively attractively priced,” said Anton Hauser, a money manager in Vienna who helps oversee $2 billion at Erste Asset Management, including euro debt in Poland and bought Latvian bonds. Compared with Poland, “Latvia is a better credit and there is a chance that Moody’s will downgrade Poland.”

The sale was three times oversubscribed with 150 investors, according to the Finance Ministry. Latvia last issued international bonds Dec. 8, raising 550 million euros of notes due 2020 at yield of 28 basis points more than the mid-swap rate. The nation is rated A3 by Moody’s and an equivalent A- by S&P Global Ratings. Poland is ranked A2 by Moody’s and one step lower at BBB+ by S&P.

Poland paid 125 basis points above midswaps in April to raise 750 million euros due 2036. That was 25 basis points more than it paid in January, days before a surprise downgrade by S&P, which cited concern over the independence of key institutions as the Law & Justice-led government pushed to consolidate power after winning elections late last year. Moody’s is scheduled to review Poland’s rating on Friday.

In the secondary market, investors are demanding a premium of 65 basis points to own Polish debt rather than Latvian securities due in 2025, a difference that was negligible before S&P’s decision four months ago.

HSBC Holdings Plc, JPMorgan Chase & Co., Natixis SA and Swedbank AB were hired to manage the sale, the Finance Ministry said.

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