Czech Republic
10Y benchmark auction well bid
Hungary
The new government will try to minimise the fiscal tightening for this year
Poland
The Polish zloty underperforms its peers
The week ahead
NBP to opt for a pause in its easing cycle
Overview
CE fixed-income markets see green shoots of recovery
The improved sentiment in global markets has also become evident in Central Europe. This improvement stemmed not only from leading indicators such as business sentiment, but particularly from a favourable start of the earnings season in the United States. The positive influence of the spring onset of stabilisation or, to put it more accurately, a slowdown of the fall in global economic activity was evident not only in the stock markets but also on fixed income markets. The improved mood made itself felt in primary markets, with the Czech Republic and Hungary having easily sold their 10Y government bond issues, as well as in the secondary markets, where risk premiums decreased markedly, practically anywhere we look. Poland’s credit risk as measured by credit-default-swaps declined by more than 200 bps, while the yields of 10Y government bonds in Hungary fell by the same value. The spread between bond yields and swap rates in the Czech Republic also narrowed significantly.
Of course, the question is whether this positive development is sustainable in the days and weeks to come. Everything will depend on the development of the aversion to risk in leading markets, while domestic news (including comments from domestic central bankers and new information on the development of budget deficits) will be more or less ignored. Core equity markets have risen by more than 30% from this year’s lows. In this context, the oncoming threat from U.S. carmakers and the outcome of the US stress test for banks contain the risk of a negative correction. Such a move might also cause a (moderate) widening of the risk premiums in Central Europe.
