Headlines
Currencies: Czech FinMin plans shortening duration
Fixed Income: Polish governor Belka warns against rapid zloty appreciation
Czech Republic
Following some interesting releases of the domestic macro data and two bond auctions earlier this week, both the Czech forex and fixed-income markets experienced a quiet session yesterday. Volatility was low on both fronts, while the only interesting (relative) price action was seen in asset-swap spreads, which dropped to 4-month lows as bond yields have continued to fall, while swaps edged higher.
Czech Minister of Finance Kalousek confirmed that he wanted to cut CZK 4bn off the planned CZK 78bn in 2011 government debt-servicing costs by issuing more shortterm bonds and bonds with floating coupons. While Kalousek might save some money, we think that this is a quite risky strategy. Nevertheless, the impact on the bond market should be positive – especially for the long end of the yield curve. Thus we might expect that long-term yields will probably establish fresh historical lows.
| Currencies | change | |
| EUR/CZK | 24.68 | -0.1% |
| EUR/HUF | 284.4 | -1.1% |
| EUR/PLN | 3.932 | -0.4% |
| USD/PLN | 3.107 | 0.1% |
| EUR/USD | 1.270 | 0.2% |
| USD/JPY | 84.1 | 0.5% |
Hungary
The Hungarian forint appreciated for a second consecutive day and the pair reached the 283.50 level this morning, 1% stronger than yesterday’s 286 level. It seems that the government’s decision to cut the deficit to below 3% of GDP in 2011 created widespread optimism among investors and also the supportive international background helped the forint. August inflation was better at 3.7% Y/Y and lower core inflation of 1.5% Y/Y, suggesting that demand driven inflation has basically disappeared in Hungary.
The Hungarian fixed income market rallied sharply with the currency and yields lowered about 30bps yesterday and the long-end got close to the key 7.00% level.
| Bonds 2Y | change | |
| Czech Rep. | 1.64 | -0.1 |
| Hungary 3Y | 7.22 | -0.23 |
| Poland | 4.76 | 0.02 |
| Slovakia | 1.58 | -0.19 |
| Eurozone | 0.7 | 0.08 |
| USA | 0.56 | 0.05 |
| Bonds 10Y | change | |
| Czech Rep. | 3.26 | -0.07 |
| Hungary | 7.31 | -0.31 |
| Poland | 5.49 | -0.02 |
| Slovakia | 3.68 | 0.00 |
| Eurozone | 2.34 | 0.09 |
| USA | 2.75 | 0.13 |
Poland
The Polish zloty stayed in wait and see mode for another session. The pair remained nearly unchanged in an extremely tight range between 3.93-3.95 EUR/PLN. It more or less ignored a slight improvement in global sentiment after better than expected US initial claims as well as further comments made by central bank governor Belka. He reiterated that he sees no dangers for Polish inflation now. Furthermore he warned that Fed liquidity moves may bolster the zloty, which could be bad for the economy.
Today we expect another boring session. The global scene is empty and improvement in domestic current account has hardly any potential to shift the market.
