CEE Weekly Bond Markets Outlook

13 Ianuarie 2012

RAIFFEISEN BANK S.A.

 

Highlights

Poland – The current aggressive (re-)financing of the Polish sovereign on domestic and international markets is based on a strategy to place at least 25% of the annual issuance in January. The authorities are working under the assumption of another round of turmoil due to the Eurozone wobbles. Although such a cautionary strategy makes sense it may exert some upward pressure on long-term yields in the near term. This holds especially in combination with the recent wording from the NBP which expects inflation to remain stubbornly high in the months ahead. Nevertheless, we still foresee a tangible slowdown of the Polish economy and inflation dynamics going forward. Accordingly, the coming weeks may offer good opportunities for building up positions in the Polish bond market.

Hungary – We remain firm that Hungary will sign the agreement in the first quarter of the year, though we note that the road ahead will be bumpy. The EU/IMF has just toughened their stance, and their wish-list is full of sour pills for the government to take. Probably not so separately, the Commission decided to move the EDP procedure against Hungary closer to sanctioning. We expect difficulties to emerge at some point of the talks, as politically speaking many of the required measures would go against the government’s previous policies, and thus we see no easy agreement.

Czech Republic – CZK and Czech bonds are still under pressure from global risk aversion. Specifically, there are sensitive reactions to the developments in the Hungarian crisis. The global market mood will be decisive for Czech assets during the next weeks as well. The Czech government is working on preparing a budget amendment envisioning further expenditure cuts of about CZK 30 bn (0.8% of GDP) to keep the fiscal deficit unchanged amidst the worsening economic conditions.

Romania – Interbank interest rates and yields on government securities have gone down substantially since the beginning of the year following an improvement in liquidity conditions in the money market and the cut in the monetary policy rate. While yields for short-term tenors (6-months and 1-year) might still fall, on a temporary basis, in the near term, the yields for longer tenors (more than 2-years mature) should see stabilisation around their current levels.

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