Bond funds continue to be a viable option to save efficiently, but with relatively small volatility, even during this period of instability.
In unprecedented coordination, the Central Banks around the world have presented measures to support financial markets. The Central Bank of America (EDF) cut its the benchmark interest rate to 0% and resumed its $ 700 billion government bond purchase program. The European Central Bank has announced a program of acquisitions of sovereign and corporate bonds worth 750 billion Euros. Many central banks, including those in Japan, the UK, Canada, Switzerland, Poland and Croatia, make liquidity injections into the financial markets.
Monetary easing measures are being taken by Central Banks around the world, and on Friday, 20.03.2020 the National Bank of Romania announced a brave monetary easing program.
Thus, the National Bank of Romania has decided the following:
• Cutting back the monetary policy interest rate by 0.50 percentage points, from 2.5 percent, to 2.0 percent as of March 23, 2020.
• Narrowing the symmetrical corridor formed by the interest rates of the permanent facilities around the monetary policy interest rate to ± 0.5 percentage points from ± 1 percentage point. Thus, as of March 23, 2020, the interest rate for the deposit facility is maintained at 1.50 percent, and the interest rate for the credit facility (Lombard) is reduced to 2.50 percent, from 3.50 percent. Against this background, it is expected that the main ROBOR quotes will experience a significant downward adjustment.
• The provision of liquidity of credit institutions through repo transactions (reversible transactions with government securities) in order to ensure the smooth functioning of the monetary market and other segments of the financial market.
• Purchase of government securities in lei from the secondary market in order to strengthen the structural liquidity of the banking system that will contribute to the financing in good conditions of the real economy and the public sector.
Depending on the evolution of the situation, the Board of Directors of the National Bank of Romania is prepared to decide to reduce the rate of minimum reserves required for liabilities in lei and that applicable to foreign currency liabilities of credit institutions.
This news is particularly positive for bond funds, whose price increases when the reference interest rates fall (because investors buy existing bonds, as in the future they will place the money at lower interest rates).
Even though the bond markets registered volatility on short term, we expect that all the monetary easing measures of the central banks will start to take effect in the next period.
It is very important to remember that emotion-based investment decisions are often unfavorable to your interests. In times when volatility is high and implicitly emotions are high, it is very useful to remind yourself of the time horizon that you initially considered for saving. It is important not to make hasty decisions under the impulse of emotions, even if the upward and downward movements of the price of your fund units are higher than usual.
A buy-back in such situations generates a real mark-up of a theoretical, until now, loss in your portfolio. We do not exclude the possibility that this period of volatility will continue for a while, but history has shown us that in the medium and long term, given all the measures to support the world economy, taken by central banks worldwide, the bond funds can generate higher profits than conventional savings products.
Thus, we are confident that, through efficient administration, we will be able to have higher medium and long term returns than the conventional savings products, be it OTP Bonds, OTP Euro Bond or OTP Dollar Bond.
This message is informative and does not represent an investment recommendation from OTP Asset Management Romania SAI S.A. or a firm offer to contract the financial products referred to therein. Also, the message does not represent personalized financial advice regarding investments or fiscal / legal advice. OTP Asset Management Romania SAI S.A. is not responsible for the potential losses arising from the transactions carried out in accordance with the ideas expressed. Please note that the value of your investment may increase or decrease over time, and your past performance is not a guarantee of future earnings. Read the issue prospectuses and Key Investor Information (DICI) before investing in investment funds. The issue prospectus and Key Investor Information (DICI), as well as complete information can be obtained from the OTP Bank Romania Distributors' offices, as well as on the company's website www.otpfonduri.ro.
OTP Asset Management Romania SAI SA - Aleea Alexandru 43, Sector 1, 011822, Bucharest, Company administered in a dualistic system. Tel: +40313085563; Fax: +40313085555, office@otpfonduri.ro CUI22264941, ORC no. J40 / 15502 / 15.08.2007, ASF authorization decision no. 2620 / 18.12.2007, Registered in the ASF Register no. PJR05SAIR / 400023, Shared capital: RON 5,795,323. ANSPDCP Registration No. 8236
Depository: Banca Comercială Română SA
Distributor: OTP Bank Romania Strada Buzești, no. 66-68, sector 1, Bucharest, Romania; fiscal identification code RO 7926069, registered in the Bank Register under RB-PJR-40-028 / 1999.
FDI OTP Obligațiuni - ASF Decision no. 501 / 26.05.2011, Registration Number ASF Register CSC06FDIR / 400048, ISIN Code: ROFDIN0001B3,
FDI OTP Euro Bond - ASF Decision no. 1083 / 20.08.2010, Registration Number ASF Register CSC06FDIR / 400069, ISIN Code: ROFDIN0001J6,
FDI OTP Dollar Bond - ASF Authorization no. A / 2 / 09.01.2014, Registration Number ASF Register no. CSC06FDIR / 400085, ISIN Code: ROFDIN0001X7.