Romanian state bonds, among best performers in the region and in Europe this year

Sovereign bonds issued by states in Central and Eastern Europe (CEE) stood out as some of the best performing assets in Europe due to the decent yield relative to their fundamentals and ratings, as well as the historically low market volatility, according to the most recent Erste Group Research report “CEE Eurobonds – the ‘Sweet Spot’”. “Among local currency bonds, Romanian 5-year bonds, with a 9.8% total return, outperformed the whole region by far,” said Juraj Kotian, Head of CEE Macro/Fixed Income Research at Erste Group. “This is mainly because its currency has not weakened (as it has been well anchored by the central bank) and the liquidity surplus brought yields downs”, Kotian explained. He expects that Romania’s Government will issue new bonds in the last months of this year. “As of end-September, the Ministry of Finance had covered around 82% of its total funding needs for this year, so the country still needs to carry out financing this year. True to its strategy, it has managed to lengthen maturities, which is why gross funding needs for 2015 have dropped to around RON 50 billion (EUR 11.3 billion). Around 22-23% thereof could be tapped from abroad, while the balance will be sourced domestically.” The CEE government bond market has become more significant over the past few years as these countries’ relative rating has improved versus the Eurozone (several CEE countries got upgrades, while many Eurozone countries’ rating headed south) and CDS spreads have compressed, the Erste report shows. The CEE bond market is now the fifth largest in continental Europe with an approximate EUR 400 billion market capitalization. Of this, Romanian bonds are about EUR 35 billion. “One of the hottest investment topics at the moment is the low interest rate environment, so we have seen more institutional investors looking to diversify their portfolios and thus eyeing CEE sovereign bonds,” Kotian said. Andrei Chirileasa, andrei@romania-insider.com