Monday, June 14, 2010

Romania eyes debt yield dip on confidence vote win

BUCHAREST, June 14 (Reuters) - Romania's government will likely snub investors seeking high premiums in a debt sale on Monday, gambling it will create a more stable political backdrop and ease pressure on yields a day later by winning a no-confidence vote.Uncertainty over Romania's ability to enforce austerity measures, needed to keep a 20 billion euro deal led by the International Monetary Fund afloat, has pushed yields on its sovereign debt higher in recent weeks.

The finance ministry has rejected several bids since May 6 and analysts said it will probably do so again at a debt tender later on Monday, waiting until after the no-confidence vote, called over the austerity cuts, before selling more.

Finance Minister Sebastian Vladescu was quoted as saying by daily Ziarul Financiar that Romania could afford to reject bids as its cash position was not "desperate". The ministry tenders 1 billion lei ($285 million) worth of six-month treasury bills later on Monday. "I understand from this statement that they will reject bids today as well," said ING Bank analyst Vlad Muscalu. "Most likely is that the government will not fall tomorrow and this should ease some of the pressure (on yields)."But this is only a first step, pressure won't cool off too much. It will be gradual, if budget figures support it. We still have to see what happens with the constitutional court and then to see how the measures will be implemented."

The centre-right coalition of Prime Minister Emil Boc needs 236 votes to survive on Tuesday and will get more than that if a group of independents in parliament holds good on a pledge of support for the measures.The motion will be debated in parliament starting at 0700 GMT and be followed by the vote probably in the early afternoon local time.

Even though political risk could ease after the vote, analysts say Romania's constitutional court could hamper the government's plan to enforce drastic pay cuts, aimed at capping the budget deficit at 6.8 percent of GDP this year.

Observers fear mounting social pressure could also sway the government to ease some of the spending cuts, with powerful trade unions having called a one-day general strike for Tuesday.Unions are hoping to get support from a million workers, about a quarter of the total labour force, but analysts say summer holidays may result in a much lower turnout.Besides domestic woes, the ministry is also up against increasingly negative sentiment towards the region's debt, as shown by a poor auction in Hungary last week and rising yields in the Czech Republic.

Investors are expected to ask for yields of up to 7.3 percent at Monday's tender, the level at which six-month paper is being quoted on Romania's dormant secondary market. Some dealers say a small amount of debt could be sold at yields around 7 percent.The government last sold 6-month treasuries on May 10, when the average accepted yield shot up to 6.38 percent, from a previous 5.74 percent. The cut-off yield came at 6.5 percent.($1=3.505 Lei)

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