Headlines
Currencies: CNB’s Tomsik sees first rate hike possible mid 2011
Fixed Income: Czech Finance Ministry declares low financing needs for end of the year
Czech Republic
The Czech koruna strengthened on Tuesday, returned below 24.80 EUR/CZK and closed the day around 24.77. It has practically erased the losses from the start of the week and confirmed that the area around 24.80 is the preferred range for now. The pair ignored comments from vice CNB governor Tomsik who, contrary to some of his colleagues, does not see any necessity to hike interest rates.
Today’s budget balance should not have any material impact on trading. The koruna so far stick to the level of EUR/CZK 24,80 and should not diverge either today. Nevertheless, if the global sentiment deteriorates in light of upcoming US figures, the koruna might weaken.
The Czech yield curve again flattened yesterday. The shorter end rose over 2.5 bps, while 10yr papers fell by 0.5 bps. At average trading volumes, the market has been preparing for the today’s auction. It is worth noting that despite the comments of the three members of the CNB board with regards to the option of raising interest rates, vice governor of CNB Mr. Tomsik has refused the act at least until the second half of the year 2011. His main argument is tighter fiscal policy.
The main domestic event on the bond market should be the auction of 3.40%/2015 government bills. The Ministry of Finance offers papers for 7 billion CZK. We bet on strong demand especially as the Ministry of finance issued a new auction calendar pointing to very low financing needs by the end of the year. For comparison, for the previous round of the same bond, which took place on 16/7/2010, supply exceeded demand 2,25 times, and the average return equated to 3,001%.
| Currencies | change | |
| EUR/CZK | 24.73 | -0.4% |
| EUR/HUF | 286.4 | 0.0% |
| EUR/PLN | 3.987 | -0.5% |
| USD/PLN | 3.137 | -0.4% |
| EUR/USD | 1.272 | 0.6% |
| USD/JPY | 84.4 | 0.2% |
| Bonds 2Y | change | |
| Czech Rep. | 1.82 | 0.06 |
| Hungary 3Y | 7.51 | 0.24 |
| Poland | 4.67 | 0.02 |
| Slovakia | 1.72 | -0.01 |
| Eurozone | 0.60 | 0.00 |
| USA | 0.49 | -0.01 |
| Bonds 10Y | change | |
| Czech Rep. | 3.37 | 0.02 |
| Hungary | 7.77 | 0.31 |
| Poland | 5.43 | 0.02 |
| Slovakia | 3.69 | 0.07 |
| Eurozone | 2.13 | 0.04 |
| USA | 2.50 | 0.00 |
Hungary
The Hungarian forint felt a bit of a relief on Tuesday afternoon as better sentiment on equity markets helped high-yielders to recover some of the losses they took on Monday.
The forint climbed back to 286.50 from 287.00-287.50, which is a small move and could mean only temporary relief if risk aversion continues. On the positive side, the foreign trade balance posted a large, €563m surplus in June, which is underpinning the recent trend of an increasing trade surplus this year.
The Hungarian fixed income market lost about 20bps and yields at the long-end rose to 7.50%, a 2-month high. The short-end also moved and FRA rates are now pricing in 50bps rate hike for the next 6-months and 100bps for the next 12-months. The 5y5y forward spread also widened to this year’s high of 370bps and therefore the risk is probably still for further weakness, albeit market may take a pause today after the sharp move yesterday.
Poland
The Polish zloty attempted to return above 4.00 EUR/PLN, however unsuccessfully. Arguably thanks to slightly better sentiment on global markets after the improvement in US consumer confidence. The news that the finance ministry has covered 77% of its financing needs for the whole year was more or less ignored.
Besides the further improvement in Polish industrial PMI, the domestic agenda is calm and the key element for the zloty should be the afternoon outcome of the US manufacturing ISM.
