CEE Macro & Fixed Income Report
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4 Februarie 2011 |
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BANCA COMERCIALĂ ROMÂNĂ S.A. |
Adresa
Bulevardul Regina Elisabeta, Nr. 5
Bucureşti, Sector 3
Telefon
+40-21-314.91.90
+40-21-312.61.85
Fax
+40-21-310.02.46
+40-21-311.18.19
Website
www.bcr.ro
Analysts’ views
CZ Rates: The CNB kept rates unchanged yesterday but doves prevailed by only a small margin with four people voting for unchanged rates and three for a 25bp hike. It may appear that a hawkish wing is being formed within the board - but for two of the members who we think voted today for the hike (P.Rezabek, R.Holman) this was the last meeting and we do not know if they are going to be reappointed. In our view, the first tightening will be delivered in 3Q/11 as the combination of a strong crown, fiscal consolidation, low demand inflation, negative output gap and the external nature of inflation are not exactly making it necessary for the CNB to hike immediately. The CNB itself factors in a first hike at the end of 2011 in its macro forecasts. The 9x12 FRA jumped to 1.95% and short swaps rose to 2.27%. Whilst today's conference was more hawkish than November's we do not expect 4Q/11 3M Pribor to be 75bp higher than it is today. Certainly not with a crown that jumped to 23.93 after the decision.
TR Macro: Thanks to the favorable base from the previous year, annual inflation reported a sharp drop to 4.9% y/y in January from 6.4% in December. This was the lowest level since July 1970. In m/m terms, however, consumer prices posted an increase of 0.4% m/m, which is a notch above the 0.3% market consensus (our expectation was 0.7% m/m). Given the favorable base as well as the expected correction in food prices, we believe that annual inflation could decline further to a 3.5-4.0% range in February. Despite the decline in annual inflation, bond yields rose distinctly by 20bp which we think was mainly due to increased concerns that the CBT will continue with its new policy mix of rate cuts and hikes in reserve requirements to put a cap on the swift deterioration in external balances and credit expansion.
RO Rates: The NBR decided to maintain the key rate at 6.25%; in line with our expectations and market consensus. Minimum reserve requirements were also kept unchanged for both RON and FX. The press release issued by the NBR is rather optimistic on the inflation outlook – disinflation will resume in early-2011 and could gain speed once the first round effects of the hike in VAT dissipate. We maintain our forecast for an end-2011 key rate of 5.75% and consider the endorsement of a precautionary stand-by arrangement with the IMF as the key element that will enable the resumption of monetary easing in the next few months.
RO Bonds: The MinFin held two auctions for government bonds. Healthy demand enabled it to sell 3Y bonds worth RON 775mn at 7.11% (down from 7.12% at the previous auction in January) and 5Y bonds worth RON 500mn at 7.16%; unchanged as compared to the previous auction. As the NBR seems comfortable with the amount of excess liquidity in the market and the fiscal consolidation process which will continue within a new agreement with the IMF, 5Y yields are expected drop to 6.6% by September.
Traders’ comments
HUF Bonds: The bond market is correcting after a strong rally.
PLN Bonds & IRS: Bonds are stable as most activity is concentrated on IRS. We have seen interest in butterfly trades. The 2-5-10 butterfly has jumped from 17 bps to 27 bps in a day to a 1y high as we see better payers of 2s and 10s.
RON Bonds: Secondary bonds weakened in the wake of the RON 1.3bn 3 and 5y bond auctions and the CB rate setting decision.
CEE CDS: In spite of the bloodshed in Egypt and the potential for even greater disarray, the positive undertone in CEE capital markets is undeniable. The ECB decision to hold rates steady – the consensus opinion at the turn of the year – actually caused EURUSD to correct down after the market had begun to reassess the probability of earlier rate hikes in the Eurozone and then found itself disappointed. All in all, the waters now seem muddied and the CDS market, unsurprisingly, had a mixed day but Hungary was once again the outperformer (-95 bps YtD). With the CDS now at 300 bps, OTP at over 700 continues to look underpriced. Today, the focus will be on US unemployment data and the European Summit.
