CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

PL Rates: As expected, the MPC left the policy rate flat at 2.50%. As suggested by Marek Belka, the next few meetings should not bring any changes in the MPC bias, as modification of the statement is most probable in July, when the new inflation projection will be released. While the inflation rate remains low and we see the risks rather on the downside, we believe that the interest rate will remain unchanged at least until the end of the year. Thus, if any modification is made, we expect it to be in this direction. Consequently, we expect short-term market rates (3M WIBOR) to remain stable around 2.71 for at least the next half-year.

HU Macro: Supreme Court (Kuria) will only make a decision in the FX mortgage loan relief plan in the autumn, according to the daily Magyar Nemzet which is close to the government. The European Court is going to publish its decision on 30 April on this issue. The government said it will only make further steps regarding the FX mortgage plan after the end of the legal processes at the European Court, the Kuria and at the Constitutional Court. Meanwhile, an important ruling party official, Rogan said banks that grant help to FX loan holders could receive deductible from the special banking tax. We still believe that the government tries to postpone the issue as much as it can and will not take any radical steps in this issue, such as the forced conversion of FX loans. We keep our forecasts unchanged for the time being (EUR/HUF at 305 FY avg., 302 eoy).

CZ Macro: CPI in March remained low for the third consecutive month in the Czech Republic (0.2% y/y) as the prices of food, beverages and tobacco remained the only significant positive contributor helping to avoid the deflationary scenario (adding 1.0pp to the CPI in March; see Short Note). In an immediate comment, Governor Singer repeatedly stressed that the CNB will struggle for a smooth exit from the FX intervention regime (EURCZK above and close to 27) in order to avoid excessive EURCZK appreciation resulting in further CPI decrease below the CNB 2% target.

CZ Bonds: At yesterday’s auction, the Czech MoF sold in total CZK 10bn worth of government bonds due 2018 and 2028. In the case of the 4Y maturity, the average yield went down to 0.725% compared to 0.84% reached in March (bid-to-cover 2.2). Similarly, the average yield of the 14Y issuance declined to 2.706% compared to 2.938% recorded in February (bid-to-cover ratio 2.0). Due to accumulation of factors pointing to lower than expected inflation to arrive in the Czech Republic, we revised our forecast for 10-year T-bond yields slightly downwards (2.18% at the end of 2014).

Traders’ Comments:

CEE Fixed Income: Greece is expected to return to the global capital market for the first time since 2010 today. The order book is already reported at EUR 11bn for the 5Y bond issue while the pricing at the gray market is sounded at below 5%. The news did not impact CEE bonds much, which traded roughly unchanged in local currency bonds (apart of HGBs which were more mixed) and tighter in yield in CEE EUR bonds. Buying interest in Romanian local currency continued but it was not so aggressive as in the last days with prices roughly unchanged. Today MoF in Romania will re-tap the 3Y bond DBN053 with RON 500mn target amount and our guidance of 3.9% +/- basis points. In the corporate world, Deutsche Telekom announced that it will consider a bid for Telekom Slovenije which pushed bond prices of the Slovenian corporate up 1% with offers mostly disappearing. The turnover in other corporates was relatively low but we traded some BREPW 19, EPENERGY 18 and GAZPRU 18. Today’s key data should be IJC in US and CPI and industrial production figures from France.