Bloomberg: Traders are already treating Romania’s bonds as junk, although they have not yet been downgraded. Investors are watching political stability and the 2027 budget

Romania’s high yields continue to attract investors, despite political and fiscal risks, according to Bloomberg. Markets are now watching the development of the political crisis, the avoidance of snap elections, and the authorities’ ability to adopt a rigorous budget for 2027.

The cost of insuring against default risk through five-year CDS contracts has reached 144 basis points, the highest level among the more than 60 investment-grade-rated countries monitored. The yield on Romania’s two-year bonds is 6.52%, the highest in the European Union.

Investors consider these yields to compensate for the risks associated with political instability, recession, and the highest inflation in the EU. Romania’s external debt, however, is trading at levels comparable to those of some junk-rated countries.

Romania has the lowest rating in the investment-grade category at the major rating agencies: BBB- at Fitch and S&P and Baa3 at Moody’s. Fitch maintained the rating in July, but warned that additional measures are needed to stabilize the debt.

Analysts believe that a credible budget for 2027 could support Romanian bonds. Conversely, a weak fiscal plan or a new political crisis could trigger the country’s downgrade to junk status.