EM Alpha: Poised for a tactical rally: Long ROMANI 37 vs SOAF 36

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EM Alpha: Poised for a tactical rally: Long ROMANI 37 vs SOAF 36

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EM Alpha

Poised for a tactical rally: Long ROMANI 37

vs SOAF 36

Long ROMANI to fade near-term downgrade risks 12 May 2026

We go long ROMANI 37 vs SOAF 36 (open: 15 bps, target: -5 bps, stop: 30 bps, GEM FI & FX Strategy

timeframe: 3 months). The entry point is attractive (see Exhibit 1). ROMANI spreads vs Emerging Markets Global

EM EXD are cheap after controlling for DXY, oil and deficit expectations (see Exhibit 2 Raghav Adlakha

and Emerging Insight: Romania – reforms at risk, ROMANI at a discount 05 May 2026). EM Quant/Sovereign Strategist

ROMANI spreads are now pricing fiscal risks above our forecast (see Exhibit 3), and MLIraghav.adlakha@bofa.com(UK)

ROMANI 10y spreads are pricing in ~2.5 notches of downgrades, near its post-2022 Mai Doan

highs (see Exhibit 4), and above levels historically associated with mean-reversion. Risks CEE Economist

to the trade arise from a prolonged political crisis in Romania, a precious metals rally or MLImai.doan@bofa.com(UK)

a pricing out of South African political risks. David Hauner, CFA >>

Global EM FI/FX Strategist

Romania to stave off a downgrade.…. for now MLIdavid.hauner@bofa.com(UK)

We have a tactically bullish outlook, as recent newsflow suggests Romania may be able EEMEA FI Strategy & Economics

to get a new PM in place to pass the administrative reforms needed to unlock EU funds MLI (UK)

for this year. This, we believe, will be sufficient to stave off near-term fiscal and rating GEMs FI Strategy & Economics

risks. However, these risks are likely to stay elevated relative to January, as the overall BofAS

reform agenda in Romania is unlikely to maintain its pace under a new government. See Team Page for List of Analysts