The cost of insuring against the risk of Romania’s sovereign debt default over the next five years, through credit default swap (CDS) contracts, is by far the highest among securities issued by more than 60 countries worldwide with an “investment-grade” rating.
The risk seen by investors and insurers comes even though two major credit raters, Moody’s and Fitch, confirmed Romania’s position at the lowest level of the investment-grade category, namely BBB- and Baa3, respectively, with a negative outlook.
Romania’s next rating review is scheduled for October 2, 2026, and will be announced by S&P Global Ratings.
Romania is now viewed with the same caution by investors when it comes to local bond markets. Here, the yield on two-year Romanian securities is 6.52%, the highest rate in the EU. Ten-year securities have a yield of 7.2%, Bloomberg reminded.
Even under these conditions, the high interest rates Romania pays attract investors with a higher appetite for risk.
“At current levels, the purchase is starting to become attractive,” said Juan Orts, a strategist at Societe Generale SA in London. “It is the classic scenario for emerging markets: when there is excessive pessimism, and everyone is worried, that is when you buy.”
The specialist pointed out that Romania “dodged the bullet” when Fitch Ratings maintained its BBB- rating in July. He estimated that the country will probably avoid a downgrade to the “junk” category by S&P Global, as part of the review scheduled for next month.
With expectations from the rating agencies somewhat clarified, investors are now focusing on developments showing a significant reduction in the budget deficit. They want to know whether the trend will be continued through the most important law for the economy in 2027, the state budget law.
“Domestic risks in Romania have increased since the collapse of the majority government; however, sovereign spreads have performed well,” said Sheraz Hussain, portfolio manager at RBC BlueBay, an asset management firm based in London.
The sovereign spread represents the interest rate difference between bonds issued by the Romanian state and those of a country considered very safe.
Investors see the political risk, but are attracted by the very high interest rates Romania pays to borrow. For many traders, the potential financial gain outweighs the immediate risk, and they treat Romanian bonds as a profitable opportunity as long as fiscal reform commitments remain in place.
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