• Friday, May 24, 2024
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Bondholders supplant East Europe IMF aid as yields decline


Bondholders are replacing the International Monetary Fund (IMF) in bailing out some of Eastern Europe’s most indebted nations. Hungary, Romania, Serbia and Ukraine, taking advantage of record low borrowing costs, sold $7.25 billion of notes last month, snubbing fiscal requirements from the Washington-based IMF for loans.

At yields as high as 7.6 percent, the securities lured investors seeking better returns than the average of 4.67 percent for emerging-market dollar-denominated bonds.

The sales are helping the former communist nations raise financing without accepting the budget discipline demanded by IMF loans. From Bucharest to Belgrade, the debt is in demand as zero percent interest rates and increased monetary easing in developed nations push investors to search for higher yields in riskier securities.

“We see a few countries with worsening economic policies and the market is not punishing them,” Viktor Szabo, who helps manage $11.8 billion at Aberdeen Asset Management in London, told Bloomberg by e-mail February 15.

“In the current abundant liquidity environment, the anchor role of the IMF and other international financial institutions is less important as investors are desperately looking for yields.”

Hungary’s dollar bonds have returned 21 percent in the past year, almost twice the 11 percent average for emerging-market debt in JPMorgan Chase & Co.’s EMBI Global Diversified Index.

The rally cut Hungarian yields by 219 basis points, or 2.19 percentage point, to 5.33 percent, while the EMBI average dropped 72 basis points. Ten-year US Treasury yields fell to 1.92 percent from 1.98 percent, while the S&P 500 Index rose 15 percent in the past 12 months.