Yield of Romania's 10-year bonds down as Govt. drafts ambitious 2025 budget planning

The yields of Romania's long-term (10-year) bonds on the secondary market eased by 41 basis points (bp) w/w to 7.61/7.36 (bid/ask) on January 31, to the lowest levels since January 9.

The government drafting a budget planning in line with the fiscal consolidation plan, without supplementary tax hikes, apparently improved investors' sentiment.

However, the borrowing cost reflected by the yields of the 10-year bonds is still 42bp above the level reached on December 11 after the presidential elections were scrapped (on December 6) and the former ruling coalition managed to form a new majority in Parliament (with the help of the Hungarian party UDMR) after December 1 parliamentary elections. In the meantime, however, both Fitch and S&P changed their outlook on Romania's fragile sovereign rating to negative, quoting uncertain fiscal dynamics amid political turmoil.

Although the ruling coalition formed by the Social Democrats (PSD) and Liberals (PNL) managed to regain majority in Parliament despite lower scores in the December 1 ballot, the political risks remain elevated in the light of the presidential elections rescheduled for May.

Romania envisages a new FX bond, initially scheduled for the end of January, but deferred to let the positive impact of the budget planning draft prepare the ground.

In related news, an IMF mission will conduct a regular staff visit in Bucharest from February 3-7. Although regular, the visit may provide valuable insights into how realistic the government's budget planning seems.

The Fiscal Council issued a forecastover the weekend, putting the actual budget gap 0.7 percentage points (pp) above the government's 7%-of-GDP target.

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