Investors are beginning to favour municipal and corporate bonds over T-bills, as the former are bringing higher gains. Mutual funds are the best example, as managers have dropped part of the T-bills from their portfolio and bought bonds instead, in an attempt to provide investors with higher yields.
Bonds accounted for 46% of mutual funds' assets last year, up from less than 4% in late 2002. The share of T-bills, on the other hand, has dropped from 80% to 33%. Several years ago, it used to be more profitable to invest in T-bills than in banking deposits, although the risks were smaller. Things have changed, however, and the yields are now in line with the investment's risk and duration.
Should Raiffeisen Bank's 1,200bn ROL bond issue (to be launched on Monday) be successful, the Romanian bond market will surge to almost 2,500bn ROL ($75 million), with corporate bonds accounting for more than two thirds of the total. The bonds market is still lagging behind the T-bills segment, but if the trend continues the market may see a spectacular reversal in the next few years. The T-bills issued in March, for instance, were worth more than 7,800bn ROL.
Investment fund manager Certinvest has launched a new mutual fund, which will focus exactly on these types of instruments. Although there are other funds investing large amounts of money in bonds, the Orizont fund established by Certinvest is the first such financial institution aiming to derive gains solely from investments in bonds. "The Romanian market did not have such a product before, and demand for investments in bonds is on the rise. On the other hand, the market is seeing increasingly more bond issues," says Ovidiu Vasincu, a consultant with Certinvest. The fund is starting out with assets worth 2bn ROL, from the company's main shareholder - the Romanian-American Enterprise Fund (RAEF). The managers are planning to buy at least one billion ROL worth of Raiffeisen bonds.
"T-bills provide increased security, at least theoretically, but the risk entailed by bonds is no bigger, because there have been absolutely no problems so far. After the investment fund crisis in 2000, managers were trying very hard to attract investors by offering investments in T-bills, which are associated with very low risks. Now, everyone is after bigger yields," says Doru Puiu Tiberiu, head of BCR Asset Management, a company managing two funds that also invest in bonds.
The longer maturities of municipal or corporate bonds are one of the reasons why they bring bigger yields. Inflation-indexed municipal bonds can bring yields of up to 24%, banking bonds yield about 20-22%, whereas T-bills can provide gains of 18% at best. Most issues of municipal or corporate bonds mature in at least two years, whereas T-bills are generally issued for no more than one year.
vlad.nicolaescu@zf.ro
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