February 5 (SeeNews) - Erste Group said on Monday it expects the yield of Serbia's dinar-denominated Treasury bonds to decline in the short term, due to the foreseen reduction of benchmark returns.
The yields of Serbian dinar-denominated Treasury bonds can decline by 20 to 30 basis points in the upcoming period, driven by the Fed hikes and the expected tapering from the European Central Bank (ECB), which will affect foreign investor appetite for emerging market debt paper, Erste Group said in a Central and Eastern Europe Insights report.
In the mid-run, the yield of Serbian dinar-denominated Treasury bonds is expected to recover its gradual growth, as there will be no potential for further strong spread compression, Erste Group added.
Erste Group expects an acceptable level of fiscal deficit, stronger economic activity, stable inflation and stable FX developments in Serbia, which creates room for yield compression.
The yield of the Serbian dinar-denominated Treasury bonds dropped to 4.40% in February 2018 from 5.60% in February 2017, due to the notable improvement of the fiscal position, fall in financing needs, stable inflationary developments, loose monetary policy stance and strong foreign investor interest due to the attractive interest rate differential, Erste Group noted.
Erste Group said in December Serbia can skip some euro-denominated Treasury bond issues in 2018, although it estimates its Eurobond placements to reach 1 billion euro ($1.25 billion) this year. Experience in the last couple of years shows that Serbia can skip the issuance, despite the official plan, Erste Group said at the time.
($ = 0.801998 euro)