CEE Macroeconomic and Fixed Income Research

Analysts’ view:

PL Rates: According to Zielinska-Glebocka, the chances for a rate cut have recently increased. The rising uncertainty is most visible in the dropping PMI index and its value below 50 worries Zielinska-Glebocka. She does not rule out a 25-50bp cut. On the other hand, Kazimierczak is convinced that the MPC should sustain a higher level of rates to prevent the zloty from depreciating. Although the data supports the easing, the MPC may not be convinced that such a move is necessary in September. There are more members who have become dovish in their latest comments. Rate cut expectations support a low level of yields (10Y close to 3.4% at the end of 3Q14).

RO Bonds: The MinFin sold bonds maturing in Jun-21 worth RON 300mn as planned, at an average yield of 4.14%. Demand was robust and investors put in bids worth RON 808mn. Debt managers have covered 2/3 of this year’s gross funding needs so far, which suggests that they are not in a position to cut issuance aggressively or reject investors’ bids in the remainder of 2014. Our forecast of higher bond yields by year-end is intact, with 5Y yields likely rising towards 4.1% in December. FED tapering, moderate political noise ahead of the presidential election scheduled for November and a possible freeze of the agreement with the IMF are the key reasons behind our view.