Bond Market Buoyant for Europe's East
By Sarka Halas and Carol Dean
The Wall Street Journal
With low interest rates making new debt sales attractive, governments in Central and Eastern Europe are busy raising cash for next year, with investors looking favorably at their sovereign bonds.
Slovenia, Romania, and Bulgaria all saw strong demand for their papers in the international bond market over the last month as investors were happy to increase their exposure outside the center of the euro zone's debt crisis.
Slovakia followed with a debt sale Wednesday, the same day Serbia embarked on a series of meetings with investors for a potential dollar-denominated deal. Poland sold more than planned in its zloty-denominated 2018 bonds on Thursday, funding its 2013 borrowing needs.
Slovakia sold bonds at well below the borrowing costs of stressed fellow euro-zone members Spain and Italy. Slovakia, a euro-zone country that has so far escaped the fiscal problems plaguing its western peers, borrowed 1.25 billion euro worth of 10-year bonds for a yield of 3.421%.
Italy's 10-year bonds yield around 5%, and Spain's 5.8%, according to Tradeweb data.
"Cash is cheap, the future is uncertain at this point, and I wouldn't be surprised to see anyone coming to market," said Tim Ash, analyst with Standard Bank.
That "anyone" could even be countries like Belarus, a former Soviet state that still has difficult relations with the West, Mr. Ash said in a recent note. The country could be looking at a dollar-denominated bond in early 2013 to cover budget financing needs, he added.
Governments from Central and Eastern Europe have borrowed 5.7 billion euro in the international bond market in the second half of this year. And while those borrowers are trying to get as much cash in the bank as they can while it's possible, investors are continuing to push into emerging markets and down the credit ratings curve in search for yield, a trend that may continue into next year.
The macroeconomic backdrop appears to support this push. The euro zone faces a deeper-than-expected recession in 2012, with only a modest recovery in 2013. Its economy will shrink 0.25% this year and is predicted to grow only 0.5% in 2013.
Even though the European Commission this week cut growth projections for Central and Eastern Europe, the countries will likely expand faster than euro-zone members. Romania, for example, is expected to see growth at 2.2%, with Poland seen growing 1.8%, and Bulgaria 1.4%.
Even the Czech Republic, a country that has already borrowed twice to the tune of 2.75 billion euro this year, took advantage of lower borrowing costs Wednesday at an auction. The country sold a total of 4.1 billion Czech koruna (7.7 million) in a 2015-dated fixed rate and a 2023-dated floating rate bond, also funding its 2013 needs.
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