“Why RO Gov Bond ETF? Well, if you check RO 10Y EUR spread, currently it is around 300 bps. For comparison, Croatia is around 100 bps and Slovenia is even less!” Danijel Delač, CEO of InterCapital Securities, part of InterCapital AM, said in a post on his LinkedIn profile.
Croatia & Slovenia both currently have better credit rating than Romania, according to S&P, but since RO public debt/GDP ratio is 49% (and it has a very lively & growing local economy); InterCapital AM expects improvement in the rating & decrease in the spread (which would equal capital gain on RO GOV Bonds) in the future.
“Same thing happened in Croatia between 2015 and 2024 (when we moved from BB to BBB+ & spread fell from 450 bps in 2015 to 100 in 2024). This is all pretty technical for readers/investors who are not experienced in Fixed Income investing but the point of the story and ICAM’s thinking is that improving local economy in RO will result in improving credit rating & potentially, increase in prices of local bonds.”
Since 7GROM ETF holds 5 to 10 Year bonds, Intercapital projects c 2% average yearly capital gain in the same period in addition to what these bonds are yielding. All in all, it expects/projects 6 to 7% yearly net return in the next five years.
“This positions it somewhere between CASH ETF/T-bills & stocks/equity ETF; both in terms of expected returns & risk connected to the instrument. Keep in mind that bonds are traded instruments so prices (and ETFs NAV) can vary. Mark to market is a pain in the a…”
(English version by Loredana Fratila-Cristescu)