Feb. 1 (Bloomberg) -- Romanian bonds rallied the most in more than 1 1/2 years after the European Union’s second-poorest member sold $1.5 billion in its first dollar debt sale.
Yields on existing euro-denominated notes maturing in 2018 fell 18 basis points, or 0.18 percentage point, to 6.29 percent by 12:54 p.m. in Bucharest, headed for the steepest one-day drop since May 10, 2010. The cost to insure the debt for five years with credit-default swaps slid seven basis points to 392, the lowest in almost three months and less than 398 for higher-rate euro member Slovenia, according to CMA data.
Romania sold 10-year notes at a 6.875 percent yield, with investors bidding for almost $7 billion, Deputy Finance Minister Bogdan Dragoi said yesterday. The country in March 2011 stopped drawing funds from a 20 billion-euro ($26 billion) bailout from the International Monetary Fund and EU as it cut spending and increased taxes. The country does not intend to draw on a new precautionary loan provided in 2011, the IMF said in December.
“The positive investor sentiment regarding Romanian credit is due to its scarcity value -- this was the first dollar paper from Romania and hence will probably go in the benchmarks -- and positive underlying credit story supported by a strong IMF anchor,” Gyula Toth, a Vienna-based strategist for emerging markets at UniCredit SpA, wrote in a report to clients today.
Investors should buy the leu as it is set to strengthen to 4.25 per euro, the strongest level since September 2011, from 4.3477 yesterday, Toth said in the report. The Romanian currency has lost 0.5 percent against the euro this year, compared with gains of 7.3 percent for the Hungarian forint, 6.3 percent for Poland’s zloty and 1.7 percent for the Czech koruna.
“Following the successful Eurobond issuance, the risk reward on short euro-leu positions improved significantly, and the weak exchange rate does not seem to be in line with the outperforming credit market,” Toth said. “We originally expected about $2 billion Eurobond issuance for the whole year, so the authorities have already covered 75 percent.”
Romania’s 2018 yield has fallen 43 basis points since the end of last year as the government plans to narrow its budget deficit to 1.9 percent of gross domestic product this year from 4.35 percent in 2011. Default swaps, which fall as perceptions of creditworthiness improve, have declined 57 points this year, according to data compiled by CMA, a unit of CME Group Inc.
The leu today traded little changed at 4.3454 per euro.
--Editors: Peter Branton, Ash Kumar
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