The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Could CEE convergence fund inflows reverse?

As an environment of global deflation persists, money looking for yield continues to flow into emerging-market bond funds. Funds that have never invested in central and eastern European debt are now queuing up to do so. One banker in Poland says even Australian investors now hold Polish debt.

This is great news for the debt agencies in convergence countries. As Edward Basinski, head of foreign debt at the Polish ministry of finance, likes to say: "We have now effectively converged." Spreads on Polish, Hungarian and other convergence debt are very low. At 47 basis points over swaps for Poland, and 27bp over swaps for Hungary, they are in line with spread levels for debt issued by Italy or Greece immediately before they converged.

Partly as a result of these very low spread levels, and partly as a result of falling foreign direct investment levels, some CEE economies are relying more and more on these portfolio inflows to finance government. The best example is Hungary.

The current account deficit in Hungary, which throughout the late 1990s stayed small, suddenly worsened in the second half of 2002, from e2 billion in 2001 to e2.8 billion in 2002. FDI slowed to 1% of GDP in 2002, so the Hungarian government relied more and more on portfolio inflows to support the deficit.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree