Romanian households purchased RON 2.2 billion (EUR 440 million) of government bonds denominated in local currency and euros under the March issue of the Fidelis scheme (bonds listed at the Bucharest Exchange), Economica.net reported. 

The March issue under the Tezaur scheme, under which households can buy government bonds with the same coupons (but the bonds are not listed at the Bucharest Exchange), continues by the end of the month.

Romania’s government pays 6.8% for 1-year local currency bonds, 7.5% for 3-year bonds and 7.8% for 5-year bonds. The income derived from such investments is not subject to income taxation.

The views regarding the impact of the government’s Tezaur and Fidelis schemes diverge, but the effects on the households allocating their savings are visible. With risk-free non-taxable yields as those paid by the government, there is no more reason for individual investors to place their money with mutual investment funds with a focus on bonds, while the funds with a focus on shares may generate higher revenues yet at higher risk.

Some argue that the magnitude of the government schemes is of a size that impacted the real estate market as well - via fewer speculative apartment purchases generated by households allocating their money to government bonds. This remains questionable, though, as the placement in local currency bonds (which generate yields comparable to those of the real estate placements) bears exchange rate risk as well. The yields of the government bonds denominated in euros are still lower compared to the real estate yields.

However, the impact of the high yields paid by the government is visible in the lending rates and thus volumes (squeezing off effect): the companies can hardly compete with the government in borrowing for investment and development at current lending rates pushed up by the high cost of capital and opportunity cost faced by banks.

iulian@romania-insider.com

(Photo source: Facebook/Bucharest Stock Exchange)