Thursday, June 17, 2010

Romanian Bonds, Stocks Rally as Parliament Backs Prime Minister

By Krystof Chamonikolas and Piotr Skolimowski

June 16 (Bloomberg) -- Romanian bonds rallied the most in three weeks and the main stock index climbed to its highest in a month after Prime Minister Emil Boc’s government survived a no- confidence vote, clearing the way for economic austerity.

The advance in the benchmark euro-denominated bond maturing in 2015 pushed the yield down 21 basis points to 6.16 percent, the biggest drop since May 26, at 4:30 p.m. in Bucharest. The BET equity gauge jumped 2.7 percent to 5,099.99, its highest closing level since May 19 and the biggest gain among 93 national indexes. The cost of protecting against a Romanian default fell.

Legislators voted against an opposition no-confidence motion aimed at blocking spending cuts yesterday after the stock market closed. Boc has proposed reducing public wages by 25 percent and pensions and jobless benefits by 15 percent to help meet terms of an International Monetary Fund bailout loan.

“They survived the vote, which is very good from a political stability point of view,” Simon Quijano-Evans, head of emerging-market research at Credit Agricole Cheuvreux in Vienna, wrote in a report to clients today. “On the equities front, we will continue to see upside moves, but the consumer story is going to be hit even more by the measures.”

Default Risk

The European Union’s second-poorest member is relying on a 20 billion-euro ($24 billion) IMF and EU loan to revive its economy from recession. Romania stands to receive 2.5 billion euros from the IMF and 2.3 billion euros from the EU if it meets the deficit target of 6.8 percent of gross domestic product agreed with the IMF, Boc said on June 7.

The opposition and trade unions say the cuts will spark a social crisis. Public sector employees have staged daily protests in front of the parliament and city halls across the country to urge lawmakers to topple Boc’s government. Opposition leader Victor Ponta said yesterday after the vote his party will challenge the planned measures at the Constitutional Court.

“The ruling coalition remains very fragile” after some of its legislators “voted against the government,” said Elisabeth Andreew, chief currency analyst at Nordea Bank AB in Copenhagen in a report today. “Hence, the leu will remain vulnerable.”

Credit-default swaps, contracts that protect investors from a default and which drop in price as risk perception improves, slid 2.5 basis points to 346.5 basis points earlier today, according to CMA DataVision data.

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