Short-term Czech bond yields touched minus 1%

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Polish macro data slightly weaker than expected

Short-term Czech bond yields touched minus 1%

The Polish statistical office released fresh values of a few key macroeconomic indicators yesterday. Though slightly weaker than expected, the data still look solid. Retail sales, for instance, grew more than 6 per cent year-on-year in real terms in September (and in 2016Q3, too), indicating a strong growth of the Polish domestic demand in the July to September period.

The Czech Ministry of Finance issued short-term government bonds (maturing 2019) with deeply negative rates (-0.56 %). The 2Y bond yield had been already traded below minus 1 % yesterday. The state of affairs is due to huge capital inflows absorbed by CNB interventions and thereby creating new CZK liquidity (that partly goes to the bond market). No wonder then that Czech central bankers try to diffuse speculations over their early exit from the intervention regime (defending the EUR/CZK 27.00 floor). CNB Governor Rusnok, for instance, has recently repeated that the (FX) interventions against the koruna could easily continue until 2018. The timing of the exit would depend on the assessment of fulfilment of the conditions for the exit (i.e. mainly of CPI inflation to be close enough to CNB´s inflation target at 2 % Y/Y). Then it would be a sort of openended situation, Rusnok said.

We believe that the CNB will leave its FX intervention regime in the middle of 2017 only on condition that the ECB will have started reducing the amount of its asset purchases earlier next year. For this reason, today's ECB meeting could be interesting for Czech markets. However, we don't expect any concrete signal regarding changes in the QE next year to come from the ECB before December.

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