It seems that capital flows to Central Europe from Japan is gradually blowing out and the focus is moving to regional monetary policy. Low inflation data from Poland and Hungary revive the concerns about monetary easing across the region. Nevertheless, while rally seems to be over, it seems that CEE currencies are hovering around current levels and waiting for new stimuli.
Today, although Slovenia is not in our regular focus, we think its auction of T-bills could interesting even for regional markets, because the Country could become another EMU member, which might (temporary) loose its acces to capital markets. In an effort to ease concerns over the large June2013 bill redemptions (€1.1B in total), the Slovenian treasury issues EUR 500 millions of a new 18-month
T-bill. After the recently failed bill auction, in which the country tried to raise EUR 100 million, but only managed to sell EUR 5 million, we believe they will have drummed up demand to roll-over outstanding bills and thus avoid another auction failure. Given the precarious state of the Slovenian banking sector, we hope to see some international demand for the issue as national banks’ capacity to absorb more debt is limited. The yield on offer will be an interesting variable.
When the redeeming bill was issued under more or less similar circumstances back in 2011, the Slovenian treasury paid 3.99%. Aside from the new T-bill, the Slovenian treasury also offers to buy back its largest outstanding issue (EUR 86 million, OZ1, June 6 2013). The price guidance at the buyback auction is 99.525%.
By doing so, attention might shift away from this big pay date. We believe increased short term borrowing, in combination with alternative funding instruments such as private placements or bond issues within an EMTN program will eventually overcome the June bill redemptions.