Romania’s long-term borrowing costs eased in recent days despite the ongoing political crisis, suggesting investors continue to expect a relatively quick restoration of political stability and fiscal policy continuity. The local currency showed signs of stabilisation after 3% negative correction during the first days of political instability - in the broader context of significant strengthening over the past years, Profit.ro reported.

The yield on Romania’s 10-year government bonds fell below 7% on May 7 for the first time since mid-April, while recent Treasury auctions were heavily oversubscribed. The Finance Ministry sold 12-month Treasury bills on May 7 at an average yield of 6.11%, lower than the 6.35% recorded at a similar auction on April 22.

At the same time, blue-chip stocks on the Bucharest Stock Exchange maintained an upward trend in the days following the collapse of prime minister Ilie Bolojan’s government, with key indices approaching the record levels reached at the end of February before the correction triggered by the Middle East conflict.

Financial markets appear positioned for a relatively rapid resolution of the political deadlock, anticipating the eventual formation of a government broadly similar in structure to the coalition that collapsed after the Social Democratic Party (PSD) joined the far-right Alliance for the Union of Romanians (AUR) in backing a no-confidence motion.

However, Erste Group warned in a research note that recent statements from the Liberal Party (PNL) and reformist Save Romania Union (USR), both planning to move in opposition, indicate that negotiations may prove more difficult and prolonged than markets currently expect.

Despite the recent decline, Romania’s sovereign yields remain above the levels seen in mid-April, when the 10-year yield had fallen to around 6.65% following the US-Iran truce. They also remain significantly above the 6.2%-6.5% levels recorded in late February before the escalation of tensions in the Middle East.

The moderation in yields comes as investors continue to monitor Romania’s fiscal consolidation efforts, implementation of Recovery and Resilience Facility reforms, and the prospects for political stabilisation after the dismissal of the Bolojan cabinet.

iulian@romania-insider.com

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