JPMorgan places Romanian sovereign bonds in investment grade index, yields reach new minimum

American bank JPMorgan decided to upgrade Romanian sovereign bonds to the investment grade category, according to Bloomberg. Romanian bonds will be included in JPMorgan’s GBI-EM Global Diversified Investment Grade index, with a 2 percent weight. The news was immediately felt on the financial markets where the average yield for 10-year Romanian state bonds fell to a new historic low of 4.15 percent, on July 23, a report released by Banca Transilvania shows. JPMorgan took this decision after S&P upgraded Romania’s sovereign rating to investment grade, in May this year. “The decisions taken by international entities in recent quarters confirm that Romania’s macro-financial adjustment process following the Great Recession is coming to an end. Romania now seems ready for a new investment cycle,” said Andrei Radulescu, senior economist at Banca Transilvania. He added that JPMorgan’s decision is favorable for Romania’s economic performance on the medium and long term and that it will contribute to increasing the local financial market’s visibility. “It is possible to see new foreign capital inflows both on state bonds but also on the other components of the financial market,” Radulescu explained, adding that new inflows might also be seen on the Romanian stock market but also in the real economy. Banca Transivania’s macroeconomic scenario sees yields for 10-year Romanian bonds falling to 4.1percent in 2015 and 3.7 percent in 2016 and economic growth accelerating to 4.4percent in 2015 and 5.1 percent in 2016. However, Banca Transilvania’s analysts point out that if external risk factors increase, together with internal political risks generated by the presidential elections, this could lead to temporary volatility in the market and capital outflows from Romania’s bonds this fall. Banca Transilvania is the third largest bank in Romania by assets with a market share of about 9 percent. Andrei Chirileasa, andrei@romania-insider.com