The financial market has lost its benchmarks, few as they were. The three-year T-bill issues have been nothing more than a “formal” instrument for two months now, which the Finance Ministry keeps in its portfolio albeit declining the bids from banks, which want higher interests. This also goes for the two-year bonds, as the bids submitted for the latest auction yesterday were all rejected.
The Finance Ministry keeps applying a policy denying an increase in interests above 14.55% for two years and 13.9% for three years, leaving the National Bank of Romania (NBR) battle the liquidity on the money market on its own. All this considering the IMF mission came to Bucharest determined to demand an increase in interests to put a damper on the non-government lending growth.
The government securities’ yield curve has become almost impossible to read due to the frequent breaks. The market is therefore deprived of a minimal benchmark for medium and long-term lending again. Moreover, this reduces the supply – extremely poor as it is, of available placement instruments.
“The high selectiveness of the Finance Ministry during government securities auctions leaves the liquidity surplus draining solely to NBR. Had the Finance Ministry borrowed more from the domestic market and accepted the market’s terms we would probably not have seen such a surge in non-governmental lending,” Radu Craciun, senior analyst with ABN Amro says.
Whilst NBR signalled the interest downward trend to stop, the Finance Ministry went on against the market, which focused on short and very short maturities due to the lack of options.
The Finance Ministry is of course comfortable, given the 700 million euros it has collected from eurobonds.
A certain flexibility, however, might be imposed by the need to have the Finance Ministry help NBR absorb as much of the liquidity on the market as possible in order to temper the credit demand, as requested by the IMF. The central bank has been paying 18.25% interest on the deposits attracted from banks for two months now.
The Finance Ministry sold 51bn ROL’s worth in bonds at 13.9% during the latest auction organised yesterday, even though it had expected to raise 300bn ROL. This is the first auction of three-year T-bills to have seen some of the bids accepted in two months.
As for the two-year T-bills bills, yesterday’s auction was the third in row to have all the bids rejected.
“It’s surprising how the Finance Ministry keeps waiting for the banks to invest funds at the current quotes of the government securities, given that on the one hand, the short-term deposits made with the NBR offer better yields and the bonds listed abroad are more interesting as long-term options,” Craciun says.
The only explanation would be that actually it is not the banks that are targeted, but other categories of investors that are less picky or have no other options and also have smaller amounts available.
razvan.voican@zf.ro