Unwillingly, or maybe not, the President of France, Jacques Chirac has succeeded in making some foreign investors drop the Romanian eurobonds traded on the international markets. Chirac pointed his finger at Romania and Bulgaria on Monday, warning them they would run into trouble when it comes to their European integration as retaliation for their too tight an alliance with America. The market pricked up its ears and behaved accordingly. From the moment this statement was made until yesterday at noon, the spreads at which the Romanian and Bulgarian eurobonds traded had gone up 15-20 basic points. The yield of the Romanian ten-year eurobonds went up to 6.26% (compared with 6.21% on February 17), while the yield of the seven-year eurobonds rose to 5.67% (from the 5.57% on the same date). To put it bluntly: if things stay like this, the next time Romania releases a eurobond issue, it might have to borrow at a higher interest.
Still, the National Bank of Romania (NBR) officials are not alarmed. "The reactions of the market are marginal. The Romanian eurobonds with the longest maturity have not seen a significant quote modification, with the price keeping high above the parity value (115.35). This suggests the confidence the economic operators on the international capital markets have in the fact that Romania's and Bulgaria's convergence and accession will go on, therefore meeting the economic criteria is extremely important in this regard," Cristian Popa NBR vice-governor said.
Popa, however, notes that whereas the drop in the Romanian ten-year eurobonds price reached 0.15 cents/euro, that of the Bulgarian bonds was more serious, namely 0.35 cents/euro, yet both of them actually account for extremely low fluctuations. The impact on the Bulgarian eurobonds is actually heavier, as spreads in this case are much tighter than for Romania. This is precisely why the Romanian eurobonds have been considered a more attractive placement lately, given that the likelihood of a drop in the Romanian eurobonds spread was higher.
The analysts in Bucharest believe the reaction of the investors was to be expected, because Romania's economic future is largely dependent on the EU.
"This is one more confirmation of a trend noticed last year. The financial investors seem to attach much more importance to the quality of the relation with the EU, than they attach to the problems in the relation with the IMF. Goods news from the EU last year led to spectacular reductions of the trading spreads. Still, in order for this theory to be confirmed, we needed to see the reaction of the bonds to the bad news concerning Romania's relation with the EU, as well. We now have the full picture and the confirmation of the initial hypothesis," Radu Craciun, senior analyst with ABN Amro Bank Romania comments.
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