Romanian Eurobonds Trade at Junk-Level Amid Political Uncertainty, Bloomberg Warns of New Risks Post-Election

Romania’s euro-denominated government bonds are now trading at levels similar to junk-rated debt, following months of political instability. According to a Bloomberg analysis, the upcoming presidential runoff this weekend introduces new risks, particularly for the Romanian leu and local-currency debt.

While a Nicuşor Dan victory could temporarily calm financial markets, investors say George Simion would need to quickly gain market trust if elected. Regardless of the outcome, markets are expecting concrete measures to reduce the budget deficit.

The first round of the election, won by ultranationalist George Simion, triggered the prime minister’s resignation, bond and equity outflows, and pushed the leu to a record low against the euro. With polls predicting a tight race in Sunday’s second round, the market outlook remains uncertain.

This week, local debt partially rebounded and the leu stabilized, helped by central bank interventions, which also narrowed the controlled trading band to lower levels. However, analysts warn that pressure on the currency may resurface if the new president clashes with the current government or if delays in fiscal consolidation threaten Romania’s access to EU funds.

“An imminent change in leadership increases political uncertainty, and thus risks for fiscal consolidation,” said Mai Doan, economist at Bank of America Corp, in a note to investors. “This could prompt the EU to start considering suspension of funds as early as June or July.”

Leu-denominated debt is seen as more vulnerable than euro-denominated bonds, with investors already adjusting their positions in the latter to reflect higher risks. Domestic bonds carry the risk that the central bank may allow further leu depreciation to ease pressure on the current account and protect foreign reserves.

Currency derivatives suggest an additional 4.2% drop in the leu by the end of 2025, according to Serghei Voloboev of Bloomberg Intelligence.

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Bloomberg via Profit.ro