CEE: Yields follow Oil price development

Erste Bank Research Team Erste Bank

On the radar

In Poland, industrial output and construction output growth was solid in June (7.6% y/y and 5.2% y/y, respectively).
Producer prices growth eased in Poland to 1.7% y/y in June (from 2.4% y/y).
Employment declined by -0.9% y/y while wage grew by 5.9% y/y that is above market consensus.
Today, Hungarian central bank holds a rate setting meeting and rate cut is expected.
In Slovenia producer prices are due 10.30 AM CET.
In Croatia, June unemployment rate and May wage growth will be published at 11 AM CET.

Economic developments

Together with swinging price of oil we see similar changes on the bond market in the region. When the war in Iran started and price of oil kept increasing throughout March, we observed visible increase in long-term yields on core markets and in the region. In March, Poland and Romania experienced the biggest upward shift of the long end of the curve (by almost 1 percentage point within the month). Together with news on ceasefire at first and then conflict resolution in June, Brent oil price returned to pre-war levels, inflation has eased, and markets had priced out the expectations for rate hikes that had appeared in March and April. In consequence, we have seen long-term yields falling across region. Hungary was an exception in that period as local developments that is change of the government and following new policies and commitments resulted in outperformance of Hungarian bond market. In July, the US strikes on Iran and fears that conflict in Middle east will be renewed translated into upward pressure on yields. While monetary tightening may not become the baseline scenario, the worries about inflation development in the second half of the year and respective central banks’ actions have reappeared. All in all, the level of yields is higher again, although some stabilization could be observed on Monday.

Market movements

Today, Hungarian central bank will announce key interest rate decision. Although global situation has complicated since the last meeting, we expect small monetary easing cycle to continue given inflation development. Markets have fully priced a 25-basis point cut that would take the base rate to 5.75%. CEE currencies remain weaker against the euro since the beginning of the week, while yields have not been increasing further on Monday. Poland’s central banker member Masłowska said the July’s central bank’s projection points to the next rate move being a cut, possibly still in 2026. In Romania, political deadlock continues, but there is a proposal of a cross-party “crisis taskforce” to discuss and pass crucial laws like reforms representing milestones needed to access EU funds.

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Erste Bank Research Team

Erste Bank

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