Bulgaria's Sovereign Bonds Best Bet in Europe - Italian Expert
An Italian financial expert has urged European investors to buy sovereign bonds issued by Bulgaria, claiming they are safer even than Germany’s and Japan’s.
“True, the yield on ten-year Bulgarian sovereign bonds used to stand at about 5% a year ago, while now it has a yield a bit over 3%. Still, paradoxically, I believe that Bulgaria’s ten-year sovereign bonds are safer than the German and Japanese bonds,” Italian financier Olivier Doria d' Angri commented in an article in local media.
“The yield on the Japanese 10-year bonds have hit historically low levels and they are going further down. Lower profits mean higher prices, so in practice the higher the risk, the lower the yield," explains Olivie Doria.
"This is a paradox.”
“Yes, I still believe that Bulgarian ten-year bonds are the best option for investment in Europe.The country has EU's lowest government debt-to-GDP ratio - 14%,” the expert explained.
He stressed that if Bulgaria issues more bonds, this would create more jobs and boost people’s purchasing power.
The Italian expert also issued a warning, saying investing in south-European sovereign bonds can bring Bulgarian banks to bankruptcy.
"The lev, the Bulgarian currency, is pegged to the single currency and while a drop in the euro will boost exports, a collapse of the euro will force Bulgaria to look for alternative currencies to peg the lev to, probably a mix between the Deutsche mark and the US dollar," he forecast.
Bulgaria's former Finance Minster Simeon Djankov used to say the country should not be worried about its currency board in the event of a collapse of the euro.
In his words Bulgaria should not be worried about that peg because it is actually to the Deutsche mark and - in the event of any changes to the euro zone - it would continue to follow whatever Germany used.
The currency peg means interest rates must track euro zone rates, leaving fiscal policy as the government's main tool to influence the economy.
Last summer, euro zone member Spain was struggling to borrow money for 10 years at a yield below 7%, but Rwanda had no trouble to do it at the beginning of May.
Analysts say investors regard any kind of debt as a safer harbor than equities, shrugging off specific country risk when faced with the rock-bottom interest rates in the developed world.
These are the main reasons why orders for the East African country's debut dollar bond reached USD 3.5 B, more than 8 times the bond's issue size.
- » Bulgaria’s Gross External Debt Exceeded EUR 39.5 B in end-December 2014
- » Bulgaria’s Banking System Posts January Profit of BGN 121 M
- » Bulgarian Parliament Approves Issuing BGN 16 B Worth of New Debt
- » Bulgaria's Patriotic Front Opposes Ratification of New BGN 16 B Debt
- » Bulgaria Has Been Living on Borrowed Money since 2009 – Finance Minister
- » Bulgaria Records Second Lowest Inflation Rate in EU
Mr. "Italian Expert",
"Yes, I still believe that Bulgarian ten-year bonds are the best option for investment in Europe."
Ok, and "the market" "believes" something else. That's why for some time there was a negative interest rate on long term German and Japanese government bonds. People paid for the privilege to harbor their money in countries they consider comparatively risk free. And as every expert knows, the market is always right. Bulgarian bonds have a much higher interest rate simply because the market values them being much more risky, no matter what YOU may say.
By the way, you clearly haven't understood anything about the capital market.