Highlights
- 2010 budget deficit target at 2.5% of GDP
- Money market rates show robust moderation
- Kuna under strong appreciation pressure
- CNB removed 12% limit to credit growth
- 3Q GDP down 5.8% y/y
- Unemployment rate hits 15.5% in October
Financial markets: money market rates decline significantly
The bond market attracted significant interest, with yields on almost all maturities falling. Eurobonds were the only exception to the declining yields environment, with the short end up 150bps, and the long end down 10-30bps. Spreads were also significantly up at the short end (+150bps) but otherwise remained virtually flat. FX-linked bonds’ yields declined 50-70bps at the short end and 30-60bps at the long end, with spreads falling accordingly. Pure kuna bonds’ yields declined up to 150bps with spreads also recording up to 120-130bp decline. Overall, the bond market showed some positive movement corresponding to the stabilization of CDS’s and the successful placement of new sovereign debt. Moderating domestic MM rates were definitely supportive, with some investors deciding to move to the longer end of the curve.
