Tuesday, February 15, 2011

Romanian Treasury Yields to Remain Around 7%, BRD Official Says

Romanian debt yields may remain around 7 percent as concern about inflation prevents a further decline in borrowing costs, BRD-Groupe Societe Generale SA Deputy Chief Executive Officer Claudiu Cercel said.

Yields have declined on debt of various maturities and auction demand has risen in the past two months amid confidence the Balkan country is meeting demands to narrow its budget deficit.

“It’s pretty hard to believe yields will continue to decline,” Cercel said yesterday in an interview in Bucharest. “Even if there is excess liquidity in the market, we are facing some concerns about future potential inflationary pressures and that’s why I think we would see stabilization at the current levels close to 7 percent.”

BRD-Groupe Societe Generale, the second-largest bank in Romania by assets, took about 900 million euros ($1.2 billion) in Treasuries last year and will seek to retain its ranking as the second-biggest buyer of state debt this year, Cercel said, without specifying how much it bought in 2009.
Austerity Measures

Romania, which has been counting on international bailout funds to stay afloat since 2009, has sold more debt than planned so far this year after the government pushed a 2011 austerity budget and key legislation through Parliament to meet International Monetary Fund-agreed conditions, which boosted investor sentiment.

The average yield on five-year bonds declined to 7.16 percent at an auction on Feb. 3 from 7.27 percent on Dec. 23, while six-month bill yields fell to 6.55 percent today at an auction from 6.96 percent on Nov. 15.

The Balkan nation, which turned to the IMF, the European Union and other lenders for a 20 billion-euro bailout in 2009, found buyers for 10.3 billion lei ($3.3 billion) of its debt in January and February compared with an initial auction plan of 8.2 billion lei.

The government plans to tap international markets this quarter to raise about 1 billion euros in euro-denominated bonds to reduce borrowing costs and help keep its budget deficit at 4.4 percent of gross domestic product this year, Deputy Finance Minister Bogdan Dragoi said on Jan. 18. Romania last sold euro- denominated bonds paying a 5 percent coupon in March last year and raised 1 billion euros.
‘Cost of Eurobonds’

“The cost of the eurobonds will be calculated based on the same algorithm as before, so if you look at the swap-rate of German bunds, our benchmark, and you add the cost of risk, the credit-default swaps, then it’s clear that the yield will be between 5 percent to 6 percent,” Cercel said.

BRD, majority-owned by France’s Societe Generale SA, said today net income fell 36 percent in 2010 to 501 million lei as a lingering recession prompted higher bad-loan costs.

“We can’t say that BRD’s activity increased in 2010 and the first part of 2011 will remain difficult, but we hope that once the economy recovers in the second half, demand for credits will pick up as well and maybe bad-loan growth will ease,” Chief Executive Officer Guy Poupet said at a press conference in Bucharest today.

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

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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