Higher inflation outlook damps demand for Romanian retail state bonds

The demand for retail state bonds under the May issue of the Fidelis scheme operated at Bucharest Exchange until May 15 is weaker than in previous months, according to Profit.ro. The monthly issue is likely to end with a new record low outcome, after low results posted in February.

In May, the Treasury cut the yields after the significant hike in April under the shock of rising inflation and deteriorated inflation outlook through March. Thus, the coupon attached to the 2-year bonds denominated in local currency was cut to 6.4% in May from 6.6% in April – while remaining well above the 5.9% in March.

The demand for bonds denominated in euros increased amid exchange rate volatility and expected depreciation of local currency. Comparatively with the RON 120 million (EUR 24 million) subscribed for local currency bonds, the investors placed EUR 35 million for euro-denominated debt.

The longest-maturity securities, 10 years (R3605AE), also had the best participation, with over 1,000 orders with a total value of EUR 16.81 million. Investors were attracted by the annual interest rate of 6.25%.

In contrast, interest was low in government bonds with intermediate maturity. Thus, the euro-denominated issue maturing in May 2029 (R2905AE), with an annual coupon of 4.00%, accumulated investments of EUR 11.78 million, and government securities maturing in May 2031 (R3105AE) have preferences totaling EUR 6.32 million.

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