The message to emerge from Euromoney's tenth annual CEE conference was that investors are increasingly attracted to local-currency bonds as a source of returns in a general spread-tightening environment.
Matthias-Leonard Lang, fund manager at KTL, says: ?The full monty convergence play is the local currency play. You get three sources of yield from that play. You get higher return from the coupon. You get improving yields. And you get currency appreciation.?
Lang cites Romania as an example of his play. Spreads on its local currency bonds have tightened by 100 basis points over the past two years. ?Romanian local debt was one of the best horses in my carriage last year?, he says.
Until now, the Romanian local market was closed to foreign investors, though the Romanian Central Bank plans to open the market this year.
Other eastern European local debt looks attractive as a result of continued currency appreciation. Poland plans to increase its volume of local debt this year. Dorothee Gasser, CEE local bond strategist at Banca Intesa, says: ?Our currency models show that, due to high productivity gains, the zloty will continue to appreciate this year.?