CEE Weekly Bond Markets Outlook

5 Ianuarie 2012

RAIFFEISEN BANK S.A.

Recommendations

Neutral: PLN T-bonds, HUF T-bonds, RON T-bonds, CZK T-bonds, TRY T-bonds

 

Highlights

Poland – Some remarks by the Polish Minister of Finance (i.e. that the NBP could buy government bonds on the secondary market in principle) caused an immediate reaction by the NBP. The NBP said that any speculation on the bank buying bonds could trigger an “unwanted perception” and volatility. The statement by Rostowski should be more seen as implicit criticism with regards to the position of the ECB rather than a call that we will see government bond purchases in Poland going forward. Given the persisting PLN weakness we expect rate cuts to be delivered only later in H1 2012, starting in Q2.

Hungary – Uncertainty over Hungary’s finances is mounting, as chances for an IMF credit line agreement have seriously weakened over the past days. Nevertheless, we would like to reiterate our view that in our baseline scenario Hungary eventually will make the necessary changes in the laws under scrutiny and will agree with the EU-IMF. Current market hysteria should accelerate the process of changing the Hungarian attitude. Such a change may be further facilitated by a rumoured government reshuffle. We give a very small chance of Hungary not agreeing with the EU-IMF. But it is quite probable that the coming days and weeks will be burdened by further market uncertainty.

Czech Republic – The New Year started with a surprising improvement in the Purchasing Managers’ Index (PMI) data for December, which advanced from 48.6 in November to 49.2, but remained below the threshold of 50 indicating expansion. However, given our expectation of a further slowdown in the Eurozone in the coming months we do not expect a return towards above the level of 50, but rather a further decline. CZK continues to show stronger volatility between 25.5 and 26 to EUR. Given that we expect another surge of uncertainty in the Eurozone and that this will drive the Czech markets, we do not expect any change in the risk averse market environment.

Romania – After cutting the policy rate by 25bp to 6.00% last November, today the NBR cut the monetary policy rate by 25bp to 5.75% again, which was in line with our the market’s expectations. We see several factors which supported the cut in the key rate which let us expect one more cut of 25bp to 5.5% at some of the following monetary policy meetings. Liquidity conditions in the money market improved in December due to an increase in the government spending. This was reflected in a decrease in money market rates and in yields on governmental bonds. In spite of a potential increase in bond prices in the coming period, we maintain unchanged the “hold” recommendation as the risks to this baseline scenario are tilted to the downside.

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