Romania's fin min in danger of falling behind debt sale plan - analysts

Romania's fin min in danger of falling behind debt sale plan - analysts Author: Ken Teegardin. Licence: Creative Commons.

BUCHAREST (Romania), March 14 (SeeNews) - The funding plans of Romania's finance ministry are at risk after it rejected all bids in its two latest public debt auctions, counting on a large liquidity buffer to meet financing needs, analysts said on Tuesday.

Romania on Monday rejected all bids in a 300 million lei ($70 million/66 million euro) auction of 2024 Treasury notes, central bank data showed. This was the second auction in a row which was cancelled, and the third from 2017. On March 9, Romania also rejected all bids in a 600 million lei auction of Treasury notes due in 2020.

Commenting on the two failed auctions, UniCredit Bank noted that market demand came short of the planned amount for both, with interest impaired around the European Central Bank and US Federal Open Market Committee meetings on monetary policy. "The compensation requested by the market increased sharply, by up to 18 basis points from 2.20% for the former and 3.51% for the latter at their previous re-openings in February," UniCredit analysts said on Tuesday in a weekly comment on Romania's economy.

"These outcomes do not bode well given the public budget deficit which has to be financed in 2017. Still, the finance ministry has a large liquidity buffer which could be also used to meet financing needs giving comfort to reject investors’ bids under terms deemed to be unfavourable," Raiffeisen Bank analysts said in a daily market report on Tuesday.

For their part, ING Bank analysts pointed out that besides domestic risks, external events such as shifting EU politics and the Fed rate outlook might have also weighed on the failed auctions.

"This is the second failed auction this month, and the finance ministry risks failing behind on its plan. For now, it could afford to wait out the market, thanks to its ample FX buffer," ING analysts said in a daily briefing on Romania.

The foreign exchange reserves held by Romania's central bank, BNR, excluding gold, totalled 34.49 billion euro ($36.3 billion) at the end of February, slightly lower than 34.52 billion euro a month earlier, c-bank data showed.

Other financing alternatives might come in sync with the central bank cutting the hard currency RRR and the finance ministry issuing euro-denominated bonds, analysts added.

At the beginning of March, the ministry said it plans to sell about 2.5-3.0 billion euro  worth of eurobonds on the international markets and some 48-50 billion lei worth of leu-denominated domestic debt this year.

"Fiscal risks and the reflation process should lead to the ROMGB curve moving higher. Otherwise, on the secondary market, at the back end of the curve, yields closed mildly lower. The cash rate continued to hover around the central bank’s deposit facility rate, while the 1M-3M segment was rather flat at 0.40-0.65% mid," ING concluded.

Romania's finance ministry plans to auction 3.7 billion lei worth of in government securities in March, according to the debt issuance calendar for the month. The ministry also plans to sell an additional 375 million lei of government paper in non-competitive offers.

In February, the finance ministry sold 3.32 billion lei in domestic debt paper and an additional 315 million lei in non-competitive offers, below its initial target of 3.9 billion lei.

So far this year, the finance ministry has sold some 7.5 billion lei worth of leu bills and bonds.

(1 euro=4.5515 lei)

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