CEE Macroeconomic and Fixed Income Research

Chart of the Day:

CEE bond yields – Yields on CEE government bonds reached a new all-time low in Czech Republic, Poland and Slovakia this week. CEE bonds have been performing very well, the total flat returns from holding LCY bonds measured in EUR climbed to 8-10% if bonds were bought at the beginning of this year. It is true that it is at pair with Bunds which gained too, but with lower prospect to perform well or generate juicy accrued interest in upcoming period which would justify risk of capital loses if yields move up.

Analysts’ view:

PL Macro: Industrial output grew 2.3% y/y in July, slightly above market expectations. Thus, the data may not not seem that disappointing, but it fits the recent overall tendencies, suggesting that the economy is indeed slowing. In our view, the MPC has every argument to lower the policy rate. At this point, September seems too soon, as not all MPC members are convinced that such a move is necessary, but we should see further easing in November, at the latest. Expectations of a maximum 50bp cut support the low level of yields (10Y close to 3.4% at the end of 3Q14).

Traders’ comments:

Yesterday was more of a consolildation day with no major moves in yields with the exception of Croatia. In Crotian local currency bonds bids dominated the local curve with CROATE 16 outpeforming ending the day 15 bps tighter in yield. While the long end of the Croatian EUR curve traded weaker with yields rising slightly for CROATI 22. In macro data for this morning, the focus will be on markit manufacturing and services surveys from France, Germany and the Eurozone while in Croatia the unemployment rate. In the second part of the day market focus will shift to US with IJC, US markit manufcturing and US exiting home sales in the spotlight.