Yesterday the Ministry of Finance rejected all bids for the 1Y tender. The needed amount was 900 million RON. However, after receiving all bids which I am told came in close to 1.5 billion RON the MinFin decided to reject them.
I do not know the reason. The obvious one that comes to mind is the yield requested by banks. The last two tenders for this maturity has shown higher and higher yields but below 7%.
In any other country a failed auction could send the message to the market that banks are asking more and more to finance the deficit of the country. Is this the message here?
If it is, what’s behind it? One option would be that Romanian banks are looking more and more to credit the real economy and to finance the deficit it means to give up on some of those projects. That’s why they request more from the government. But I do not think is this (I will discuss in more detail more about credit later today).
Another option would be that banks are getting worried with the strategy of the MinFin of rolling over short term debt in the current economic environment and are asking more to cover for the risk. Again, I do not think local banks view their relationship with the MinFIn in this way.
Or, the MinFin could have a different view on the future path of inflation and hence interest rates in Romania than the view held by banks. I know historically they have not done a very good job and that is why they had to stack most of the RON debt in maturities up to 6 months. But you never know. Maybe the model of adaptive learning has reached them.
A final and I think best option is that the short term price of money has increased. We have already seen some tension on the long end of the money market curve (towards 1 year) and banks are once again starting to compete for RON in the retail market.
Irrespective of the motives and what I make of the MinFin decision there are 900 million RON still needed by the government. Where would they get the money from? I am sure that there is going to be a way, which in a transparent economy would have been clear to all of us. In Romania we have to rely on rumors only.