San Marino bond against research: spread close to 3%
The Titan bond was released early last year and marked the debut of San Marino on international markets. An extreme gesture that of the small Republic, due to the precarious financial conditions due to the pandemic. The bond matures on 24 February 2024 (ISIN: XS2239061927). It offers a coupon of 3.25%, quite high even now for such a short duration, let alone at the time of its issue. Then, the yield of BT at 3 years was traveling in negative territory of at least 0.20%.
The San Marino bond was quoted last Friday at less than 97.50 cents on the Frankfurt Stock Exchange, despite the fact that there are now less than 15 months to maturity. One price account the gross yield was 5.42% per annum. The Italian bond of similar duration was meanwhile offering around 2.50%. Therefore, here difference with Italy still traveling close to 300 basis points or 3%.
The credit risk for the San Marino bond is theoretically high, given that Fitch recently downgraded the assessment sovereign to BB, i.e. one step down in the “garbage” area.
The deadline is almost there, as we said. This raises the alarm about the Republic’s ability to deal with an amount that is only apparently limited (340 million euros), but which corresponds to about a fifth of GDP.
San Marino bond repaid with new debt
In this regard, Article 2 of the budget law for 2023 provides that the San Marino government is authorized to raise capital of up to 450 million euros on the domestic and international markets, in order to carry out the “to roll” of the Eurobond of 340 million and of the internal bond of another 50 million. In theory, therefore, there shouldn’t be any problems. As happens in the other states, the San Marino bond will also be repaid with the issue of new bonds.
The question is another: will the market lend so much money to the Republic? The doubt arises even more when one considers that the coming months risk being quite negative for the European economy. The energy crisis can send you in recession the area or a large part of it. San Marino is a small economy founded essentially (less and less) on the banking system and more and more on tourism. If one or both sectors crash, would the markets feel like putting in more money? And at what rates?
That said, the San Marino bond currently offers a higher yield than therunning start planned in Italy for 2023 and equal to 4.3%. And this implies that buying it would help the portfolio counter identification for the coming quarters. But the risk exists, even if perhaps it is overestimated.
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