FX and bond market stable in CEE

On global markets:

This week is set to be eventful and could trigger higher EURUSD volatility. Both monetary policy-setting bodies of the US Federal Reserve and the ECB will meet. For the US, an interest rate hike is all but certain, but a new survey of board members and reserve bank presidents concerning the interest rate outlook has introduced some uncertainty. The ECB should decide on the fate of the asset purchase program after September next week and might give the markets new guidance on its future course. In addition, inflation and retail sales figures for the US are scheduled.

CEE currencies:

The volatility of CEE currencies could increase this week, given the many uncertainties related to the ECB's decision on the QE exit and the FED's new interest rate outlook. A higher global interest rate environment could put some downward pressure on CEE currencies, with the Czech National Bank potentially the first to react and deliver its rate hike earlier than planned (i.e. in August). The HUF, as the CEE currency with the lowest implied interest rates in the region, could face a temporary sell-off.

CEE rates and yields:

The week before the crucial ECB meeting, at which the bank is expected to announce more details on the QE exit, several CEE countries used the window of opportunity and tapped the international debt market with the offer of long-dated hard currency bonds. Croatia issued a 10Y Eurobond denominated in EUR in a volume of EUR 750mn at mid-swap +190bp. The paper was well-demanded (the order book was EUR 2.7bn) and the final pricing went well below the initial guidance (mid-swap +220bp). The proceeds are intended to finance the redemption of a Eurobond maturing in July. Slovakia raised EUR 1.5bn last week via the offer of new 10Y and 50Y benchmarks (the longest paper at this moment in CEE) priced at mid-swap +10bp and +80bp, respectively. These papers were also highly in demand and the combined order book went to EUR 5bn. Romania's Ministry of Finance, which had to face dented demand for RON papers and thus higher yields on the domestic market, initiated a switch transaction on the USDdenominated Eurobonds maturing in 2022. Debt managers are also planning a new 30-year USD bond, taking advantage of the flat USD yield curve.

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