CEE Macro/Fixed Income Daily

Analysts’ Views:

HU External debt: The Hungarian government has decided to prepay all the remaining part of the IMF loan on August 12th (EUR 2.2b). The loan was originated in the autumn of 2008. The government only has around EUR 3.5bn in FX deposits at the central bank and the early repayment does not really have any positive financial implications (actually, prepaying the cheapest FX funds is slightly negative), so it likely serves political, demonstrative purposes. That said, the prepayment does not have any impact on our forecasts. We foresee a drop in the 10y HGB yield from the current level of close to 6% by around 50 bps by year end.

Traders’ Comments:

CEE Fixed Income: The general sentiment in fixed income markets is one of cautious optimism but liquidity is thin and while a raft of significant economic data (PMIs, US GDP, US Non-Farm Payrolls) along with a bunch of central bank meetings has the potential to derail the markets, it feels as if most market participants have already battened down the hatches for the summer season. We don’t really expect central bankers to roil the markets and don’t see a major sea change in the economic data either so we don’t expect any significant changes in asset allocations. The illiquidity is giving rise to some interesting relative value opportunities i.e. you can pick up an additional 35 bps by extending duration only minimally in HGBs between the HGB 6.5% 19 and the HGB 7.5% 20 and exacerbating the drift amongst some longer running trends (see Croatia vs Romania above) which are getting close to some technically interesting levels.