CEE Bond Markets Outlook
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27 August 2011 |
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RAIFFEISEN BANK S.A. |
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Highlights
Poland – Polish markets started to price in interest rate cuts. However, the policy rate is unlikely to change in the coming months given recent statements by central bankers. Thus, we also changed our monetary policy call to “neutral” (from our expectation of another 25bp hike in autumn). On the bond markets, we may see a minor correction, given that the market may price out its bet on a 25bp cut this year. After such a correction Polish bonds will be more attractive. We may see interest rate cuts in H1 2012. This market pricing – if priced in over the next weeks – would be more sustainable.
Hungary – With the much anticipated conference of central bankers in Jackson Hole starting later today, markets are extremely cautious about taking any positions. And with a good reason, because indirectly the Fed’s actions can have huge impact on the HGB’s. Should Ben Bernanke’s words trigger risk hunting, Hungarian bonds could outperform as they have a hefty carry over bonds from the developed markets. On the other side, the balance of the local news was slightly skewed the negative side, and thus could weigh on the market in a riskaverse environment.
Czech Republic – The S&P rating agency upgraded the Czech Republic by two notches to AA- from A. The rating upgrade did not come out of the blue: an upgrade this year was expected, but it was surprising in terms of the scale i.e. the two notches. The agency said that the upgrade follows changes in criteria, and sets more emphasis on government political and economic profile. That means there is a higher probability of a downgrade if political development heads in the wrong direction.
Romania – The Finance Ministry decided to reject all bids from investors in a 1-year T-bill auction on Monday (for the first time this year). The Finance Ministry did not rush to borrow money at any cost, as it has a comfortable liquidity buffer. On the other hand, the increase in risk aversion on the external markets is visible in an increase in the yields on longer tenors and in lower bids from investors.
Croatia – In the week ahead, depreciation pressures on HRK will be fostered by the high amount of EUR-linked T-bills falling due at the end of August and in September. Next week, the Ministry of Finance will probably hold auctions of treasury bills as HRK 854 mn and EUR 44.6 mn of bills mature. Furthermore, in September more than HRK 2 bn and EUR 171 mn of T-bills fall due, so we expect an exciting month on the money market.
Russia – Russia’s consumer prices grew slower at 4.9% since the beginning of the year to August compared to the 5.6% increase of a year ago. A slower inflation growth will embolden the central bank’s neutral stance so we expect the bank to keep interest rates on hold until the end of 2011. However, prospects for rouble depreciation remain limited right now as the bank is unlikely to use interest rates for stimulating rouble demand.
Turkey – In line with our expectations, the Turkish Central Bank kept its benchmark interest rate onhold at 5.75%, arguing that “measures taken at the interim meeting on Aug. 4 have contained the downside risks for the economy for the time being”. Following the rate announcement, both the lira and bonds gained with TRY even surging at the end of the week. If Ben Bernanke signals today the Fed could provide more stimulus for the US economy, Turkey could benefit from extra capital inflows.
