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Banking

Bulgaria: Recovering and cheap

Since teetering on the edge of bankruptcy early this year amid expectations of being the world's first Brady bond defaulter, Bulgaria appears to be bouncing back. The turning point was the installation of a staunchly pro-reform government in April since when prices across Bulgarian debt markets have rocketed.

Lev denominated T-bills, as well as the three Bradys - discs, flirbs and IABs - have all risen by over 50% making them star performers in the universe of emerging market debt. The lev, which once free fell to 3,300 to the dollar, has stabilized at 1,690 after having been as high as 1,450. The most crucial economic event in Bulgaria's troubled post-communist history, the establishment of a currency board to peg the lev at a rate of 1,000 to the Deutschmark, will finally take effect in July after months of negotiations.

"There is now some light at the end of tunnel," says Jonathan Hoffman, economist at CSFB. With all this good news on the table, as well as privatizations in the pipeline, is Bulgaria finally on the road to recovery?

"What we are seeing is a honeymoon period for the new government which has driven the debt markets to relatively expensive levels," explains Mark Evans, director of Montpelier Special Funds New Europe, which closely follows events in Bulgaria.

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