The spike in money market yields likely triggered some mild appreciation for the EUR/RON as the pair closed the day some 30 pips lower, around 4.6620. We see downside potential as fairly limited but a test below 4.6600 could occur, particularly if the central bank doesn't organise a repo on Monday.
The Ministry of Finance plans to sell RON300 million in February 2025 bonds. Given the small amount, we expect a good bid-to-cover ratio and cut-off yield around 4.60%. In general though, the market doesn’t appear to be following a clear trend right now. A budget revision is expected to be voted on, with the government sticking to its budget deficit target of 3.0% of GDP.
The high volatility in front-end implied yields continues and will likely remain in place until banks get a clearer picture of their cash flows following budget payments. Hence, we could see rates covering the beginning of the next reserve period trading even higher than the current 4.20%.