Euro-Area Hopeful Croatia Offers Investors Long-Term Bond Play

Croatia is giving investors a chance to buy into its longer-term debt and take advantage of potential spread compression as the country seeks to adopt the euro.

The Adriatic nation is offering 12-year notes at around 135 basis points above midswaps and 20-year bonds at a spread of around 165 basis points, according to information from a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Investor bids for the two bonds exceed 4 billion euros ($4.9 billion), the person said.

Prime Minister Andrej Plenkovic wants to keep his country on the path toward joining the single currency as early as 2023 by trying to rein in the budget gap within the entry criteria this year. Croatia is in the so-called ERM-2 mechanism, a two-year waiting room for euro adoption.

“Croatia is becoming more and more popular lately,” said Lovro Kuspilic, a fixed-income trader at Amsterdam-based broker AFS Interest BV. “Investors buying Croatia can get decent yield pick-up, given that the country is moving in the right direction.”

The two bonds have the longest maturities ever offered by the former Yugoslavia member in international deals, reflecting a recent trend among east European sovereigns to try and lock in lower borrowing costs for longer.

Croatia is rated one notch below investment-grade at Moody’s Investors Service and has the lowest high-grade rating at S&P Global Ratings and Fitch Investors Service.

The deal is arranged by JPMorgan Chase & Co., Morgan Stanley, Societe Generale SA and UniCredit SpA’s Zagrebacka Banka dd.

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