Central European sovereigns tap bond rally again

By bne IntelliNews November 22, 2012

bne -

Central European countries struck yet again on November 21 by issuing debt, extending the rush to take advantage of the emerging market bond rally while it lasts.

The Czech Republic achieved another record-low yield as it auctioned CZK4.6bn (€181.4m) of bonds, while Poland said it has now financed 20% of its 2013 borrowing needs after switching PLN10.24bn (€2.48bn) of debt that was due next year.

The Czech finance ministry sold CZK4.6bn (EUR 181.4mn) in 2017 and 2021 bonds. The average yield on the CZK3bn of nine-year notes sold fell to 1.910%. Prague also sold CZK1.6bn of the floating rate 2017 paper. In total, the original issues were planned to raise up to CZK8bn, and demand was reported at CZK9bn. Ministry officials boasted they can currently cherry pick, having already secured financing through next summer.

Meanwhile, the Polish finance ministry pushed back its refinancing deadline on PLN10.24bn of bonds maturing next year. Following the switching auction, the debt is now due in 2017, 2021 and 2023. Piotr Marczak, who heads the Polish finance ministry's debt management department, said the move was made possible by robust demand from foreign investors, reports Dow Jones.

Poland, alongside the likes of Slovakia, has been pushing hard in the fourth quarter to seize on the demand for CEE debt driven by the liquidity operations of the US Federal Reserve and European Central Bank. Warsaw's activity has spiked this month, as some start to talk of a bubble.

The country tapped an October issued €1.75bn Eurobond for a further €750m on November 19, for what it said was its last foreign bond issue of the year. In between those euro-denominated sales, Warsaw also returned to the Japanese market for the second time this year on November 2 as it doubled a planned samurai issue to raise JPY66bn (€639m). Marczak noted that Poland has already financed one-fifth of the PLN145bn it plans to borrow next year.

Overall, Poland has issued the equivalent of $11.1bn of foreign currency debt in 2012, excluding the latest issue. That trails only China's $30.2bn among emerging market peers, according to data compiled by Bloomberg.

Meanwhile, Latvian Finance Minister Andris Vilks confirmed that the country is mulling jumping aboard the bandwagon headed east. The Baltic state was reported earlier this year to be joining the Czechs, Slovaks and Croatia in meeting Japanese investors looking outside their traditional Western European targets to escape the euro and find a little more yield. "Most likely it would be worth it to consider selling Samurai bonds next year," said Vilks, according to Bloomberg.

"Obviously, its worth it to work with these investors so that they will become regular buyers of Latvian bonds," he added. The official said he has had meetings with investors in Hong Kong, Singapore and Japan this year.

However, not every CEE state has yet managed to tap the current appetite for emerging market debt. Latvia has delayed a planned bond sale because interest rates have not fallen far enough to reflect credit rating upgrades and the passing of the 2013 budget, the minister claimed.

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