Floating interests on bonds

ROL-denominated five-year bonds that come with a floating interest. This is the new surprise instrument the Finance Ministry is getting ready to release this fall. The benchmark for indexing the interest will be the annual inflationary rate, in addition to a spread, which will actually be the object of auctions.

“The red herring is ready, so that we could launch the issue next month. The main advantage of the new variable interest instrument is that the investors will know for sure the interest will maintain real positive at all times,” Enache Jiru, head of the Treasury told Ziarul Financiar.

The annual coupon paid by the Finance Ministry will equal the twelve-month inflationary rate as calculated two months before the actual payment in addition to a spread set during the auction. This way the coupon for the first issue released this October and paid in October 2004 will be equal to the published inflationary rate throughout August 2003-August 2004, in addition to a margin set during the auction, i.e. the above-mentioned spread. The main market segment targeted by this instrument is made up of the “shier” banks not witnessing too high credit growth and in need of choices to invest their cash. It remains to be seen whether launching floating interest bonds is a less expensive option for the Finance Ministry, considering banks would be tempted to ask significant spreads.

Jiru says the necessary checking required by the running of the auctions has already been taken care of together with the National Bank of Romania. The general mechanism is similar to the one of the current auctions, open to non-banking clients inclusive. At the same time, the Finance Ministry is considering issuing guidelines for banks on how to record the revenues derived from the new type of bonds in their accounting books. The central bank in its turn announced last month it was preparing to launch deposit certificates on the market. razvan.voican@zf.ro