Shaky Money


Some of my critics feel I tend to write long, boring pieces. All I can say to that is: you should see the stuff I read on a daily basis LOL

Today I was reading some enthralling documents on the Finance Ministry (Ministerul Finantelor Publice) website and I came across the following graphic:

click for larger

The most current information (in both English and Romanian) on this country’s sovereign bonds is from May 2012, which you can see above. The sharp drop of the blue line obviously caught my attention, which are 6 month yield bonds denominated in Euros (at 8.5% return). The red line is truncated because Romania only began selling sovereign bonds (20 year maturity) denominated in dollars this year.

The dates of the 6 month Euro bonds and the jagged blue line correspond precisely to when Victor Ponta was nominated and then confirmed as Prime Minister of this country. You’ll notice the rates of all the bonds remained nearly constant since October 2011, through the political turmoil in January, the resignation of Emil Boc and the brief two-month MRU government.

You’ll also notice that the blue immediately ends upon Ponta’s accession to the premiership. I looked everywhere I could think of to find some kind of announcement or explanation as to why short-term bonds stopped being sold after Ponta became PM but couldn’t find anything.

You’ll notice that other bonds continue to be sold past the May 7, 2012 date. Somebody in the Ponta administration clearly took the decision to quit selling short-term sovereign bonds here in Romania. My guess is this was Florin Georgescu’s decision (current Finance Minister) who took office on May 16, the same day these bonds stopped being sold. Whether that was to hide indicators that foreign investors thought Ponta’s government was a high risk or whether it was due to some other reason, I have no idea.

I also noticed via this report that Romania’s CDS risk increased by a staggering 12.25% in the first 10 days of Ponta’s premiership.

Furthermore, according to the BNR, the lei was trading a 4.4053 for 1 Euro on May 7, the day Ponta became prime minister. On Friday (July 6) it was trading at 4.5142, an astonishing (and record-breaking) drop in such a short amount of time. In fact, as soon as Ponta became PM the leu started dropping like a stone, taking only two days for the leu to fall one full point against the Euro (4.416 on May 9) and two days later (May 11) it had dropped another point (4.4265) as well.

Wish I could tell you more about this but it’s obvious that something is going on and it doesn’t seem that good.

UPDATE: Well I spent another few hours on this and indeed, according to the BNR, Ponta’s government has indeed stopped all sales of short-term (less than 1 year) bonds and treasury certificates since May 7. If you click on the link, you can see that both the Boc and MRU government was selling 6 month sovereign bonds regularly.

I also dug up more information (this from a June 11, 2012 Reuters report):

Romania sold 507 million lei ($141.58 million) in one-year treasury bills on Monday, roughly half its planned amount, at an average yield of 5.29 percent, up 27 basis points from a previous tender in May, central bank data showed.

From a Bloomberg report on June 22:

Romania has borrowed about 36 billion lei ($10 billion) from the domestic market and an additional $2.25 billion from the U.S. market this year. It sold less than half of the planned amount of leu-denominated bills and bonds this month after yields increased by about 20 basis points during the euro-area sovereign debt crisis and internal political bickering ahead of elections.

In summation, the long-term lending situation is still stable, backed by IMF and World Bank loans. The short-term borrowing situation however is terrible, with fewer investors buying government securities and then only with a higher premium (meaning there’s a perceived higher risk). Not good. Not good at all.

“Political bickering” indeed looks like it is the center of everyone’s attention and what’s going on with the government’s finances is going unnoticed.

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3 Responses »

  1. I can’t believe it! The trolls have nothing to comment on that? On the other hand, little people don’t care about money. Let “baietii destepti” (the smart boys) care about it!

  2. By the way, check out the RON-GBP exchange rate. Around the beginning of the year it was about 4.70 – now it’s 5.70. Nice.

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  1. If you’re stupid and you know it, raise your hand | Eye on Romania | Ochiul pe România

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