CEE Fixed Income Daily

Analysts’ Views:

PL Rates: The MPC decided to leave key rates flat at 2.50% and stressed in the statement that monetary policy will be stable at least until the end of the year due to little inflationary pressure and an inflation rate well below the target of 2.5%.However, the economy shows signs of improvement that should support the strengthening of the zloty toward 4.15 vs EUR by the end of the year as well as a moderate 10Y yield increase towards 4.58%.

RO Debt: Yesterday, the Deputy Head of the State Treasury was cited by Bloomberg as saying that Romania’s gross financing needs for 2014 will decline to RON 65bn (9.8% of GDP), as compared to RON 73bn in 2013 (11.7% of GDP). International bond sale plans for this year have been completed and Romania will tap global markets again in 2013 only if there are very good market conditions. The FX liquidity buffer currently covers five months of gross financing needs. According to our calculation, Romania’s gross financing needs for 4Q13 amount to RON 23.4bn. The MinFin plans to raise RON 13-15bn from the local market in 4Q13, most of it on maturities between 3y and 10y, but in our view the Treasury will overshoot their initial issuing plans or could, alternatively, also use some of the liquidity buffer (currently at five months of gross financing needs). So far, Romania has met 78% of 2013 gross financing needs which implies quite a strong supply of local currency paper in the remainder of 2013. We foresee 5y yields at 4.4% in December 2013, as additional monetary easing by the NBR will be counterbalanced by the aforementioned bond sales in 4Q13.

Traders Comments:

CEE Fixed Income: Berlusconi’s political U-turn got a lot of media attention as did the US government shutdown but this wasn’t reflected to the same degree in market movements in our region. In fact, the biggest move of the day came during the ECB press conference in EURUSD although Mario Draghi didn’t really say anything. Given the boost to the EUR, the performance of the CZK looks all the more impressive. EURCZK is testing support at 25.5 and our FX traders tell us there are sizeable stop-losses below that level. In terms of local news, the MPC was a damp squib with basically a regurgitation of everything the market already knew. We don’t really expect much action today either. Germany is off today and US-Non-Farm Payrolls are scheduled for Friday. Overriding all of these factors, of course, is the on-going political brinkmanship in the US with regard to the debt ceiling. This is probably one reason behind the stoic behaviour in the German Bund Future and the strength of the Euro. CEE fixed income is mixed. There was strong demand for short dated paper in Romania but yields only managed to close 5 bps lower given a dearth of offers. The MinFin released its issuance plans for 4Q13 and will be looking to raise RON 500 m today in both the DBN047 and the DBN018. Our fixed income traders are giving guidance around 4.40% and 5.30% +/- 5 bps, respectively. In the corporate space, we see continued signs of optimism. Unicredit has publicly stated its interest in Rabobanks polish unit BGZ and VIGs recently issued subordinated bond is difficult to source in spite of a 2% rally as profit-takers are scarce. Uniqa should be supported by the credit rating watch upgrade from S&P to positive (UQA 6.875 43 105.00 - 105.25 2 X 2).