The yields of Romania’s long-term (10-year) bonds on the secondary market eased by 41 basis points (bp) w\/w to 7.61\/7.36 (bid\/ask) \u00a0on January 31, to the lowest levels since January 9.<\/p>\n
The government drafting a budget planning in line with the fiscal consolidation plan, without supplementary tax hikes, apparently improved investors’ sentiment.\u00a0<\/p>\n
However, the borrowing cost reflected by the yields of the 10-year bonds is still 42bp above the level reached on December 11 after the presidential elections were scrapped (on December 6) and the former ruling coalition managed to form a new majority in Parliament (with the help of the Hungarian party UDMR) after December 1 parliamentary elections. In the meantime, however, both Fitch<\/a> and S&P<\/a> changed their outlook on Romania’s fragile sovereign rating to negative, quoting uncertain fiscal dynamics amid political turmoil.<\/p>\n Although the ruling coalition formed by the Social Democrats (PSD) and Liberals (PNL) managed to regain majority in Parliament despite lower scores in the December 1 ballot, the political risks remain elevated in the light of the presidential elections rescheduled for May.<\/p>\n Romania envisages a new FX bond, initially scheduled for the end of January, but deferred to let the positive impact of the budget planning draft prepare the ground.\u00a0<\/p>\n In related news, an IMF mission will conduct a regular staff visit in Bucharest from February 3-7.\u00a0Although regular, the visit may provide valuable insights into how realistic the government’s budget planning seems.\u00a0<\/p>\n