CEEMEA Exclusive: Romanian Treasury’s Nanu: ‘Huge interest’ in Romanian debt from foreign investors

26 February 2024

By Roxana Zăbrăuțanu – BUCHAREST (Econostream) – The successful issuance by the Romanian Treasury of $4 billion in bonds is evidence of very strong demand, according to General Director Ștefan Nanu.

In an interview with Econostream (transcript here) on February 14, Nanu, when asked whether demand would remain robust for Romanian bonds, expressed confidence, pointing to the year's first transaction that took place in January.

‘We had this dollar deal in two maturity tranches, 5-year and 10-year, and we issued $4 billion based on the back of very strong demand, close to $15 billion’, he said. ‘This transaction generated huge interest.’

Moreover, the Treasury is looking to create diversification by issuing Romania’s first sovereign green bonds and potentially a samurai bond that ‘will create a lot of attractiveness’, he predicted.

While current interest remains strong, some factors could weaken demand for Romanian bonds, he conceded, observing that ‘[we] are investment-grade, but we are at BBB minus and, from that perspective, the demand could be influenced by such factors’ in the context of global market volatility and changes in monetary policy.

It was not excluded that developments with respect to the war in neighbouring Ukraine could impact demand one way or another, he concurred. ‘[O]ur bond market and our assets […] are exposed to this volatility if there are important developments that might worsen or improve the perception of the markets’, he said.

‘From the economic perspective’, he said, a Ukrainian victory ‘would be favourably seen by the markets, he said.

On the other hand, during this electoral year in Romania, ‘investors could expect more populistic measures, and depending on whether those types of measures might materialise, that could also influence fiscal position and implicitly the markets to some extent’, he said.

At the same time, Romania is under fiscal pressure. ‘We targeted 4.4%, we achieved slightly below 5.7, that’s a fiscal slippage’, he observed. ‘That’s changing the whole fiscal consolidation path that was aimed at by Romania and which was discussed with the Commission.’

‘[W]e have to find ways to implement a fiscal consolidation across the years that will take us, in a much longer period, for sure, to what we agreed with the European Commission previously’, he urged.

Nanu expressed support for the National Bank of Romania's prudence in not being quick to follow the global trend of cutting interest rates, pointing out that moving too quickly could have unintended consequences. ‘So that’s why, from that perspective, our central bank is more prudent than others’, he said. ‘It was more prudent also in hiking, and it’s more prudent now about cutting.’

Potential rate cuts in the Eurozone were somewhat anticipated, he said. ‘[T]o some extent, the expected cuts of the ECB are priced in nowadays, but when they materialise that will be seen also in the bond markets in a positive manner’, he notes.

Asked about Eurobonds issuance, Nanu reiterated that the announced plan for this year consisted of ‘issuing between €8.5 to €9.5 billion’, with a ‘strategy of front-loading the funding requirements’, leading to the expectation that the Treasury would issue ‘most of the Eurobonds in the first part of the year.’

A Romanian leu depreciation was possible, but weak growth was not necessarily the sole determinant, he said, but rather, ‘a current account deficit particularly, one which is pretty significant in Romania’, along with ‘the inflows of euros in Romania due to the access to EU funds and absorption capacity’, paired with the ‘non-debt creating flows through the FDIs and EU funds’, he said.

In conclusion, ‘we know again that we have a managed float’, he said. ‘I think I would expect less volatility and more stability rather than appreciation of the currency.’

Foreign demand this year would likely be stable or decrease slightly, he said. ‘We still expect, based on how the central bank’s potential rate cuts will come and also based on the other important central bank decisions, that the curve could also go slightly down, but it will be much more stable, and from that perspective, we expect a much more stable structure of the demand between locals and offshores’, he said.

‘I would say that the perception we have is that we will stay around the same level or even slightly going down, but we expect this between 25 – 27%’, he added. ‘I think it’s something reasonable.’