Research Detail
| 2023/04/05 / Erste Group Research |
Romania Special | 10Y ROMGBs trade near fair value Ongoing fiscal consolidation and lower redemptions should significantly reduce gross financing needs in 2024. Easing inflationary pressures could make some room for rate cuts by the NBR next year. Close to record-high offshore ownership increases ROMGBs beta vs. benchmark indices, as Romania’s credit risk spread is mostly driven by external factors. The heavy elections calendar in 2024 could add idiosyncratic noise. 10Y ROMBGs yields are currently trading close to fair value and the fundamentals offer little scope for a rally by year-end. Currently, 10Y ROMGBs trade at near fair value and yields should hover around this for the remainder of the year. Political commitment to fiscal consolidation remains firm as EU money is linked to it, ensuring budget deficit convergence towards the regional median. Spread narrowing vs. peers should be supported by the expected deceleration in inflation, shrinking private sector imbalances and low public debt-to-GDP ratio (below 50%). Close to record-high offshore ownership increases ROMGBs beta vs. benchmark indices, as Romania’s credit risk spread is mostly driven by external factors. Provided that the fiscal consolidation path is not derailed by the 2024 super-election year, rating upgrades could be in the offing in 2025. We see 10Y ROMBGs yield trading close to its fair value of 7.3% by year-end, although high offshore ownership increases sensitivity to global factors. Any shifts in foreign investor ownership should be closely monitored, as it is an important factor for ROMGBs market developments in the short term. International investors are less ‘sticky’ vs. domestic ones and respond much faster to shifts in fundamentals and/or market sentiment. Debt managers took advantage of favorable market conditions and covered 42% of the gross funding needs (excluding cash management T-bills), or 100% of the budget deficit for 2023. Romania was very active on international markets, issuing Eurobonds worth EUR 2bn and USD 4.2bn YTD, three-quarters of the planned external issuance for 2023. The MinFin plans to issue green bonds on international markets in 2H23, which should ease the pressure on the ROMANIs spreads over the benchmark. Our model suggests that the 10Y ROMANIs spread vs. German Bunds should widen to just above 500bp by December, largely driven by external factors that explain more than 50% of the spread variance in a one-year-ahead period. |
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General information
| Author | Erste Group Research |
| Date | 2023/04/05 |
| Language |  |
| Product name | CEE Economies Special Report |
| Topic in focus | FX, Macro/ Fixed income |
| Economy in focus | Romania |
| Currency in focus | Romanian Leu |
| Sector in focus | - |
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