Romanian leu, bonds slide after far-right wins first round of presidential vote

Romania's leu fell more than 1% past the key 5.00 per euro level for the first time on Tuesday, and bond yields climbed as the first-round win of a far-right opposition leader in a weekend presidential election unnerved investors.

Romania's central bank was looking for the optimal way to drain liquidity from the market to keep interest rates elevated to counter significant capital outflows, spokesperson Dan Suciu said on Tuesday, ahead of the next round of a presidential election which could upend the EU and NATO state's pro-Western orientation.

The leu EURRON, which the central bank keeps in a managed float, had fallen by 1.4% and was trading at 5.0495 to the euro by 0854 GMT.

The yield on the domestic 10-year bond (RO10YT=RR) hit 8.00%, up 50 basis points in the past two days.

Most of Romania's international sovereign bonds continued to slide on Tuesday. The dollar-denominated issues maturing in 2044 and 2048 were at their lowest since November 2022, with bid levels at 81.20 cents and 69.05 cents on the dollar, respectively.

Romanian Prime Minister Marcel Ciolacu resigned on Monday, a day after far-right opposition leader George Simion won the first round of the presidential election re-run on Sunday, adding to political uncertainties.

The bank declined to comment on whether it had intervened to help the currency.

The bank had previously said it would give the tightly-controlled leu "more flexibility" if political tensions eased later this year after spending what JP Morgan estimates is over 10 billion euros ($11.32 billion) on interventions in 2024.

CENTRAL BANKS ON DECK

Other central European currencies were a touch weaker as markets were looking ahead to central bank rate decisions scheduled in Poland and the Czech Republic on Wednesday.

The Czech crown EURCZK eased 0.1% to 24.975 versus the euro after preliminary data showed headline inflation fell below the central bank's 2% target in April, making an interest rate cut almost certain.

The Polish zloty EURPLN fell 0.2% to trade at 4.2795 per euro a day, with the National Bank of Poland expected to cut interest rates for the first time since 2023 as inflation falls.

Stocks in the region were mixed, with Warsaw GPW undeperforming peers as it lost 3.4%. This was partly due to the dividend cutoff from Pekao Bank, Lukasz Janczak from Erste Group said.

"Additionally, there's weaker overall market sentiment, especially affecting the banking sector, and some investors might be reducing exposure ahead of the Monetary Policy Council's decision expected tomorrow," he said.

($1 = 0.8832 euros)