CEE Bond Markets Outlook

13 Februarie 2011

RAIFFEISEN BANK S.A.

 

Highlights

Poland – In spite of the tightening monetary policy, we feel that yields have some room to retreat back to 6.10% in the 10-year segment, as the market has already digested all of the negative newsflow. The risk for our forecast clearly comes from a stronger acceleration of consumer prices than previously expected. So far, we are sticking to our "buy" recommendation for 10-year PGBs.

Hungary – After a long period of controversial communication, PM Orbán made some important statements on monetary policy. Mr. Orbán claimed that one should not expect radical and swift changes in monetary policy after the personnel changes in the council in March. Four new external members will be nominated by the Parliament's Economic Committee, which is controlled by government politicians, and will join the three remaining internal members.

Czech Republic – The macroeconomic figures that have been published so far make us comfortable with our interest rate and yield forecast. We still believe that the central bank will start tightening the belt on monetary policy in late 2011. Although the market players have to price out the expectations of an earlier rate hike by the Czech National Bank, Czech bond yields are expected to stay high, falling in line with the development of their European counterparts.

Romania – The signs regarding the dynamics of economic activity in Q4 2010 were mixed. We believe that the quarterly GDP growth rate was close to 0% in Q4. A slightly positive figure should not be completely ruled out. It is worth noting that the statistical office will also revise the historical quarterly GDP growth rates when announcing the figure for Q4.

Croatia – The Ministry of Finance announced the government’s refinancing requirements for this year. For the government alone, they amount to HRK 26.8 bn, and including extra-budgetary funds they come to HRK 28.8 bn. Potential obligations lie in government guarantees for certain state-owned companies, which amount to HRK 43.4 bn, of which HRK 12 bn are for the shipbuilding sector.

Russia – January inflation climbed up 2.4% mom, confirming our grim expectations. In our opinion, rising inflation risks should prompt the central bank to hike key rates by 25bp at the end of February and by an additional 25bp in March. Meanwhile, annual inflation will reach double digits in Q2 before falling back through H2 2011. Inflation risks and prospects of monetary tightening will slowly take their toll on the rouble market. We believe that the present market rally will be short-lived.

Turkey – The lira receded a bit from the high levels seen at the beginning of the month, but volatility remains high. Bond yields have risen further since last week, but seem to have reached a level which is again attractive for domestic and foreign buyers alike. The market is keeping its eyes on the monetary council meeting next Tuesday, 15 February. Given the reportedly large short-term capital outflows of USD 8 bn since the inception of the new policy mix in December, the central bank may be inclined to hold the key rate at 6.25%.

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