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Raiffeisen Research-CEE Weekly Bond Market Outlook

Raiffeisen Research-CEE Weekly Bond Market Outlook

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Published by Ciocoiu Vlad Andrei

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Published by: Ciocoiu Vlad Andrei on Jan 23, 2012
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Key upcoming events and data releases
CountryTimeIndicatorPeriodForecastRange Last20 Jan
PL14:00Core Inflation, % yoyDec3.02.8/3.1/3.23.0
24 Jan
HU14:00Monetary Council meetingJan7.57.5/7.5/7.07.0TR13:00Benchmark Repo RateJan5.755.75/5.75/5.755.75RU08:00Industrial output, % yoyDec4.50 2.7/3.5/4.23.90
25 Jan
HU09:00Retail trade, % yoyNov-0.20-0.6/-0.2/0.40.6TR13:30Capacity utilisation, %Jann.a.n.a.75.5RU08:00Retail sales, % yoyDec9.00 5.0/8.4/9.08.6RU08:00Capital investment, % yoyDec7.00 4.0/7.5/10.07.7
27 Jan
HR11:00Industrial output, % yoyDec0.5n.a.-0.3PL10:00Retail trade, % yoyDec11.06.5/9.9/12.812.6
– December data showed a decline to 4.6% yoy (our call was for4.6% yoy vs. consensus of 4.7% in the range of 4.5% to 4.9% yoy) from4.8% in November. Fading inflationary dynamics were largely driven by sta-tistical base effects and a somewhat lower increase in food prices. On thedata front, core inflation is due out today (we expect a stabilisation at 3% yoy, after an increase for several months). The current stabilisation of inflation-ary dynamics should open up the door to loosen monetary policy – if EUR/PLN levels allow. Moreover, the local sovereign bond market may enjoy somesupport as supply-side risks will decrease going forward, due to the currentaggressive bond placements without much damage to the yields. 
– In line with consensus, we forecast an interest rate hike of 50 ba-sis points next Tuesday which will bring the base rate to 7.5%. This – andeven more – is fully priced into market yields. FRAs actually indicate thatmany market participants anticipate at least 100 basis points. Nevertheless,we see a strong probability that the tightening cycle will end next week. Thefollowing meeting is at the very end of February and by that time an agree-ment between Hungary and the international parties will probably be in thepipeline. This would lower the Hungarian risk premium and calm market vol-atility, which currently are the main causes of rate hikes. 
Czech Republic
– The effect of S&P’s rating downgrades in the Eurozone onthe Czech currency proved to be short-lived. CZK is likely to reach our Marchtarget unless some unexpected events occur in the Eurozone or Hungary. Inour baseline scenario, we expect the CNB to cut its repo rate by 25bp to0.5% in Q1 2012, due to absence of demand-driven pressures to inflationand the expected recession in the Czech economy. The way we see it, thisstep by the CNB will most likely come in March.
PLN4. bond5. bond
HUF7. bond9. bond
Czech Rep.25.325.224.724.4
CZK0. bond3. bond
RUB** bond8. bond1.291.301.321.35
* Prices as of 20 January 2012 10:36 a.m. CET; Cur- rencies per 1 EUR, **RUB per 1 USD Source: Thomson Reuters. Raiffeisen RESEARCH 
Neutral: PLN T-bonds, HUF T-bonds, RON T-bonds, CZK T-bonds, TRY T-bonds
Issue 3/2012 20 January 2012
CEE Weekly
CEE Weekly
Bond Markets Outlook
Bond Markets Outlook
* in %, week-on-week Source: Thomson Reuters
LCY changes vs. EUR*
* in bp, week-on-week Source: Thomson Reuters
 Yield changes*
Weekly outlook
220 January 2012
– Since the beginning of the month, the Finance Ministry borrowedRON 8.6 bn in local government securities, the highest monthly amount sinceNovember 2010. Moreover, the borrowed amount will increase given thatone more 6-month T-bill auction is due on Monday. The bulk of the debt (67%)was still in short-term T-bills with 12-month maturity. With government secu-rities reaching maturity in January amounting to only RON 4.6 bn, it meansthat net debt issued is more than RON 4 bn. 
– Strong demand for EUR from the corporate and banking sectorpushed EUR/HRK above 7.55 again, triggering another FX intervention. Thecentral bank sold EUR 130 mn to banks at an average rate of EUR/HRK7.546319. This prevented EUR/HRK from rising even further above 7.56.With the last two interventions, the CNB sold EUR 327 mn to banks while atthe same time squeezing HRK liquidity (HRK 2.5 bn) out of the system. 
– Perhaps the biggest news this week was the decision of Fitch Ratingsmove Russia’s rating outlook from positive to stable. We tend to agree withFitch’s argumentation and especially worry about fiscal slackening amplify-ing fiscal and payment risks for Russia. In another story, Russia’s central bankcut its interventions in the FX market to USD 600 mn in January compared toUSD 2.0 bn in December 2011. The bank also said that the size of the cur-rent interest rate corridor "is close to optimal”. The central bank's key refi-nancing rate now stands at 8%, while its deposit rate is at 4%. However, webelieve the bank may still tighten the interest rate corridor by another 25bpin the foreseeable future. 
– Apart from some favourable economic news from the global scene,additional support to the TRY came also from the domestic Treasury issuing1.5 bn of a 10y Eurobond. Ankara seems to put up with the widened riskpremium (+445bp over US) taking the window of opportunity with regards tothe current risk-on mode. In our view, this is a clear concession to the fact thatmost CEE countries expect to face elevated refinancing pressure in H1. Thelocal bond market is currently driven by accelerated foreign capital inflows inorder to trade the Turkish carry. Next Tuesday’s central bank meeting shouldbring no changes and bond yields should remain steady ahead of severalbond issuances next Monday and Tuesday.
Weekly outlook
320 January 2012
Local currency bonds market overview
CEE local currency bond market snapshot
19/01/2012MaturityCoupon %Ask PriceYTM %Spread to Bunds; bpMDur.Poland
PLN 2y Gov. Bond25/01/20140.0091.264.674472.0PLN 5y Gov. Bond25/10/20164.7598.495.114324.3PLN 10y Gov. Bond25/10/20215.75100.915.623817.7PLN 20y Gov. Bond25/04/20295.75100.085.7432610.9
HUF 3y Gov. Bond22/08/20146.7594.829.068682.4HUF 5y Gov. Bond24/11/20176.7589.839.068274.9HUF 10y Gov. Bond24/06/20227.0086.229.097287.2HUF 15y Gov. Bond22/10/20286.7580.859.006689.6
Czech Republic
CZK 2y Gov. Bond16/09/20132.80102.151.461271.6CZK 5y Gov. Bond26/01/20166.95117.862.241453.5CZK 10y Gov. Bond29/09/20213.85104.013.361548.2CZK 15y Gov. Bond25/05/20245.70121.353.531219.2
HRK 5y Gov. Bond15/12/20155.2595.706.525733.6HRK 10y Gov. Bond05/03/20206.7596.007.415606.1
RON 3y Gov. Bond25/10/20146.2598.826.726342.6RON 5y Gov. Bond30/04/20166.0096.387.006213.7
RUB 2y Gov. Bond16/10/20136.55100.756.236041.7RUB 5y Gov. Bond03/08/20166.9096.967.857063.9RUB 10y Gov. Bond24/11/20218.0093.607.976167.1RUB 30y Gov. Bond06/02/20366.9089.008.1056710.8
TRY 2y Gov. Bond04/12/201310.0099.7010.179981.8TRY 5y Gov. Bond17/06/201510.00100.009.999202.9TRY 10y Gov. Bond15/01/202010.50105.659.487675.8
Prices as of 19 January 2012,15:00 p.m. CET Source: Thomson Thomson Reuters, Raiffeisen RESEARCH 
Bond auctions
ISINCouponMaturityVolume23 Jan-12
TRFixed BondTRT270116T189.0%2016n.a.TRInflation linked bondn.a.3.0%2021n.a.
24 Jan-12
TRFixed Bondn.a.10.0%2013n.a.TRFixed Bondn.a.n.a.n.a.n.a.

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