Foreigners buy government securities worth 20m euros in Q3

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Foreign investors bought government securities worth 73 mln RON (around 20 mln euros) in auctions staged on the primary market in the third quarter of the year, after staying away from these instruments for several months before that.
“After a five-month absence, non-residents returned to the primary market of government securities in July and August, by submitting purchasing bids worth around 293 mln RON,” reveals the BNR (National Bank of Romania) in its third-quarter report on inflation.
 
The primary market is where T-Bills and newly-issued government bonds are sold. The auctions are organized by BNR, and 12 local banks are involved as primary dealers in these auctions. The primary dealers place security purchasing offers both on their own behalf and on behalf of their clients. According to NBR data, in the third quarter, the state issued bonds and T-Bills worth 1.26 bln RON (equivalent to 352 mln euros, at the average exchange rate of this period, of 3.57 RON/euro).
 
Non-residents’ interest return in government securities took place on the backdrop of higher profitability rates. On the occasion of August auctions the Ministry of Finance accepted to pay maximum profitability rates of 11.25% per year for one-year bonds, compared to 10.75 percent accepted by it in May. At this year-start, these securities had 9.5% per year profitability rates, Ziarul financiar reads, which also remarks that the three-year maturity bonds have their profitability raised from 10% to 10.5% over the same period.
 
On the background of a big liquidity demand, the Treasury accepted this autumn to pay even higher profitability rates. For instance, during the November auction the state sold five-year maturity bonds bearing 13% interest rates per year, whereas in May it accepted to pay 9.5% per year at the most.
 
According to bond issuance program, the Ministry of finance plans to attract 7 billion RON (approx. 1.85 billion euros at the current exchange rate) in Q4 this year, thus exceeding the level provided in the program published at this year-start. The liquidity need comes on the background of higher public spending, underlined the quoted newspaper.
 
For this year, the Ministry of Finance targeted a budget deficit of some 3 bln euros, namely the equivalent of 2.3% of GDP, estimated at 138 bln euros. At the end of 10 months, the deficit accounted for 1.5% of the GDP and the majority of financial analysts say that, till this yearend, the targeted level will be exceeded, up to 3% of the GDP.
 
BNR Inflation report also says that the trading of government securities on the secondary market advanced in Q3 to 4.69 bln RON (approx. 1.3 bln euros), almost twice as much as the level in Q2 this year. The increase is “almost totally” due to repo-type operations run by the central bank in August, aimed at injecting liquidity into the monetary market, BNR specialists underlined.
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