CEE - Bond Markets Outlook

28 Noiembrie 2011

RAIFFEISEN BANK S.A.

 

Highlights

Poland – The Prime Minister’s announced an ambitious reform agenda. This move did not reverse the rise in Treasury yields and weakening of PLN. The effect of fiscal reforms on the Poland’s credit rating perspectives should be positive. However, any changes in the agencies’ ratings outlook should be preceded by further details on reform implementation and the 2012 budget. The reform agenda is supportive of our scenario of gradual declining trend on long-term yields, which may inch closer to 5% in the course of 2012.

Hungary – Moody’s cut Hungary’s credit rating from Baa3 to Ba1 and left the outlook on negative. The rating agency is sceptical about the feasibility of the government’s goals in cutting budget deficit and public debt, evaluates the economicpolicy’s efficiency as suboptimal and emphasizes the country’s high vulnerability to external shocks. Other rating agencies are likely to follow with a downgrade to non-investment.

Czech Republic – Comparing the current levels with the crisis history of 2009, the Czech government bond yield spread over Bunds still has some room for widening as there might be further escalation of the nervousness within the Eurozone. From the fundamental point of view, we are now seeing an overreaction comparable with what occurred in 2009.

Romania – Very short-term interest rates returned to the vicinity of the monetary policy rate (6.0%) after having climbed to over 8% one week ago. While the central bank refrained from injecting liquidity at that point by ad-hoc repo operations,it did this at its regular 1-week repo auction this Monday. Liquidity conditions improved following the operation. Yields on government securities were not too much affected by volatility in liquidity conditions in the money market. The impactwas much more visible in case of short-term yields.

Croatia – Growing uncertainty and risk aversion in the Eurozone is being reflected on the domestic bonds market and Eurobonds, as investors sold off domestic bonds and Eurobonds and prices fell considerably. Eurobond bid-ask spread widenedtowards the end of the week discouraging any significant trading. Spreads compared to benchmark bonds widened, especially compared to USD bonds (58-77bp). The 5y CDS is heading closer to 580bp.

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