Tuesday, September 7, 2010

Romania Sells Fewer Six-Month Bills Than Planned on Government Demand

Romania sold less debt than planned at an auction of six-month Treasury bills today, as investors sought higher yields than the government was willing to pay on mounting concern about political instability.

Prime Minister Emil Boc’s administration raised 279 million lei ($84 million) today, failing to sell 1 billion lei of notes due March 9, 2011, the Bucharest-based Banca Nationala a Romanieisaid on its website. The average yield was 7 percent, unchanged from the last similar auction of the notes on Aug. 23.

“The government still sticks to the 7 percent threshold and the market pressure is now intensifying even on the shorter maturities,” said Gyula Toth, a Vienna-based emerging-market strategist at UniCredit SpA. “The recent political noise did not help either. The most important thing is to keep the” International Monetary Fund “program on track.”

Romania, which relies on a 20 billion-euro ($26 billion) bailout led by the IMF, is struggling to raise funds from the domestic market to cover its budget deficit after an increase in a value-added tax boosted consumer prices. An opposition plan to file a no-confidence motion against Boc’s government by year-end also prompted investors to demand higher borrowing costs.

Government Limits

The government increased VAT by 5 percentage points to 24 percent from July and inflation accelerated to the fastest pace in almost two years, above the 7 percent yield the government signaled it is willing to pay. Investors submitted 1.47 billion lei of bids today for the six-month bills at the auction, according to the central bank.

“The Ministry of Public Finances rejected all the bids which exceeded a 7 percent yield,” the central bank said.

Romania stands to receive 1.2 billion euros from the European Union this month as the next bailout payment. The Finance Ministry has raised 28 billion lei from the sale of Treasury bills and bonds from the domestic market in 2010, compared with a planned 34.25 billion lei.

“The Finance Ministry has two options to succeed in borrowing in lei,” said Vlad Muscalu, an economist at ING Bank Romania SA. “Either shorten maturities or start paying more. After today’s auction, it’s getting even more difficult for the Finance Ministry to maintain the 7 percent threshold.”

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net. Andra Timu in Bucharest at atimu@bloomberg.net.

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