The market of bonds listed on the Bucharest bourse has all the features of an “exclusivist club”: it is dominated by large investors such as banks, mutual funds and pension funds, and the “gateway” opens only when there are new issues, considering daily deals on the secondary market are almost inexistent.
Bourse investors traded bonds worth RON561,000 per day on average between January 1 and April 4. The volume is ten times lower than the average reported last year and flat from the daily average reported nine years ago, though in 2005 four times fewer issues were traded.
At present, 71 issues are listed on the Bucharest bourse. Of these, 37 are municipal bonds, 28 are state paper issues, four are corporate bonds and two are bonds issued by international financial institutions of which one, issued by the European Bank for Investment, will reach maturity this May.
The liquidity shortage on the market of bourse listed bonds is mainly caused by the fact that the biggest players on this market are banks, pension funds and mutual funds. These are long-term investors, unwilling to sell bonds before due time. Funds are the biggest buyers in state paper and corporate bond issues.
Moreover, funds prefer to keep bonds in the portfolio and cash in the interests paid by issuers. The level of bond interests is above that of banking deposits, so that bonds are attractive and not put up for sale.
“At present, yields for long-term paper stands considerably above 5%, offering a margin above the inflation rate, even in the hypothesis of a weaker agricultural year that would lead to a 4% increase in the consumer price index. At the same time, one must admit the offer of alternative local paper is weak and even when there are opportunities on the primary market, the liquidity of such paper on the secondary market is quasi-inexistent,” said Horia Braun, general manager of ING Investment Management that manages ING Romania Bond with assets of around EUR250 million.
The low bond market liquidity is an issue as this market is not accessible to investors that did not participate in the bond offer on the primary market, though bonds are a viable alternative to banking deposits and all investor types should have access to them.
Even private pension funds and bond funds are hurt from the low liquidity as they cannot sell their holdings on the bourse, but are forced to sell on the interbanking market.
What’s important is that new bond issues get listed this year to provide funds with investment opportunities.
If they cannot find bonds on the domestic market, funds will most likely shift to state paper or foreign corporate bonds. However, state paper interest rates have also declined, to 3% per annum for one-year maturities or 4% for 3-4 year maturities.
“Investment opportunities that should bring high yields are ever more difficult to find and we expect the situation to maintain next year as well,” said Dragos Manolescu, an investment manager with OTP Asset Management, which manages three mutual bond funds.
(English version by Catalina Apostoiu)