This autumn saw all time lows for the yields (actual interest) on all eight outstanding issues of Romanian eurobonds on the international markets. Yields are calculated as the ratio of the coupon (fixed interest) to the bond's market price.
The ever increasing demand for securities issued by the Romanian State or by companies has pushed prices up to record levels, causing yields on Romanian bonds to shrink spectacularly, coming visibly close to levels in the EU.
From a level of over 6% in June 2003, for example, yields for eurobonds maturing in 2012 dropped to 4.6%. The yield on issues due in 2008 was at a level of 5.5% in June 2003, only to drop to 3.8% in October 2004. Bonds due in November next year have seen their yield go down from 4% to 2.6%.
The performance of the Romanian eurobonds can also be seen in the spectacular decline in the amount of additional interest paid above the benchmark level (the interest on the bonds issued by Germany).
Taking only the issue due in 2005, the spread started 6.6 points above the interest of the Bunds (the German bonds) back in 2000. The spread narrowed to 2.5 points by 2003, only to go down to 0.4% in October of 2004.
For bonds maturing in 2012 and issued under much better terms in 2002, the spread started at 3.6%. However, it was down to 2.7% a year later and is currently at 0.92%.
Under the circumstances, Romanian securities continue to be viewed more positively by foreign investors than is indicated by the rating agencies, which still do not believe Romania can be included in the low risk category for reasons of institutional weaknesses, rising foreign deficit and lack of economic prosperity. Standard & Poor's recently upgraded their rating to BB plus, one step below the minimal "investment grade" level, with Fitch expected to make a similar move.
Publication of the European Commission's 2004 country report did not impress the markets either, despite having granted Romania the functioning market economy status. As a result, the Romanian bonds continued to improve in performance, following an upward trend common to most bonds issued by emerging countries. As far as investors are concerned, their economic prospects are encouraging, and this leads to an increase in the number of buy requests, with prices following suit.
razvan.voican@zf.ro
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