Where the Money Is

by Andrew Stuttaford

Slovenia (another possible bailout candidate) turns to emerging-market investors — and the dollar — for help.

Over at FT’s Alphaville, Robin Wigglesworth reports:

Slovenia was in the market on Friday — with $2.25bn of bonds. That’s greenbacks, not euros, despite belonging to the currency union.

But really, EM investors?

There are plenty of central and eastern EU members that are still technically classified as emerging markets, and fund from time to time in dollars, but apart from Slovakia, they still have their own currencies. Emerging market bond funds, for their part, are hungry for somewhere — anywhere — to put their mounting piles of investor money that even slightly spotty credits can be sure of a hearty welcome, and at a price that would make veterans of past EM crises blanch. Slovenia’s debts are currently manageable, at about half of GDP, but it does have a big deficit and a teeny-tiny problem with its banks.

And so it was that Slovenia was able to price the dollar bond inside its euro curve, at spread of about 390 bps over US Treasuries. As the statement points out:

“After announcing indicative terms of the transaction on Oct 18th, investors indicated demand of over $11bn within a 12h period allowing the issuer to both substantially tighten the pricing and increase the deal size to their maximum capacity of $2.25bn.”

Just how good is this ending to Slovenia’s woes? The country took down a year’s funding in one go. The country still has a big banking problem (who doesn’t, these days). But perhaps the talk of a bailout will now be quieted….

The biggest loser in all of this is the eurozone. The fact that an EU and euro country has to go to emerging market investors for funding is a indictment of just how broken things have become in Europe’s markets.

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