Czech Republic
The Ministry of finance cuts the domestic supply and issues a eurobond denominated in
euro.
Poland
No clear signs of inflationary pressure according to central bank governor
The week ahead
Will the Polish C/A deficit again be close to EUR 1bn?
Overview
Market conditions for debt financing look quite favorable
Central European governments are currently completing their draft state budgets for 2011. At the same time, they are also unveiling their plans as to how the state budget deficits and the bonds due next year will be (re)financed. The preparation of the issuance strategies for next year may have two common features.
Firstly, there is every indication that the interest costs of financing will continue to go down as nominal interest rates in all of the region’s countries (except for Poland) remain at all-time lows. Central banks in the region may start tightening their monetary policies next year. However, as this will happen in the context of a continuing recovery, risk premiums on the government bonds concerned may continue to fall. So, the impact of the tightening of monetary policy may not be dramatic to any great extent.
Secondly, given further improvements in the conditions of the financing the government debt, the respective governments should, as much as possible, take advantage of those highly favourable conditions on the domestic market. They might try to extend the duration of their government debt accordingly before tighter monetary conditions will make themselves felt in higher yields in the future. The details on the issuance strategy of the of the different countries still need to be published but a similar strategy would be more than logical.
