CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

PL Macro: PPI remained negative at -1.5% y/y and industry contracted by 1.9% y/y in August disappointing the markets, as consensus pointed to marginally positive growth dynamics. First, the economy has been slowing (that was indicated by dropping PMI). Second, the downward trend was strengthened by statistical effect (one working day less). Such a reading may strengthen expectations for bigger than 25bp cut and supports our scenario of low level of yields (10Y at 3% at the end of the year).

CZ Bonds: At yesterday's auction (the only one in 3Q14), the Czech MoF sold in total CZK 10bn worth of government bonds due 2018 and 2027. Due to a large extent to the abundant liquidity within the Czech financial sector, contrasting with fairly restricted MoF issuance activity during the remainder of 2014 (both key domestic factors behind the recent yields' shrinkage), the average yields in the case of T-bonds maturing in 2018 went down to 0.212%, from the 0.464% reached in May (bid-to-cover at 3.65). As we expect the current situation to persist in 2015, we maintain our yield forecast for the 5Y paper at 0.48% at the end of 2H15.

Traders’ Comments

CEE Fixed Income: Yesterday the FED kept the rhetoric unchanged with “considerable period” but emphasized their flexibility and ability to move should conditions dictate. Today we also have the Scottish vote which has the potential to cause disruption to markets should the majority vote yes to an independent Scotland. CEE bonds traded relatively stable yesterday with POLGBs mid part of the curve outperforming following the disappointing industrial production data. In Croatia, we saw a relatively slow trading session with not many trades reported while in Serbia we experienced better bids for the USD papers. In auctions, Serbian’s MoF issued 1Y treasury notes in RD 5.29 Bn at 8.2% while Romania will today re-tap the 5Y bond DBN014 (June 19) with RON 400 mn amount and our guidance at 3.57% +/- 5bps.