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Erste CEE Macro Comments

HU Bonds and Fiscal: Yesterday, a senior official of the Government Debt Agency, Andras Laszlo Borbely, said that Hungary is not under pressure to issue additional net FX debt in 2011.

He added that the EUR 2.5bn of FX reserves can be 'freely used' for debt financing, so the Agency can issue FX debt when market conditions are favourable. The Economic Ministry reported a municipalities fiscal deficit of HUF 247bn (0.9% of GDP), around HUF 60bn above plan. According to our calculations, the 2010 deficit reached 4.0-4.1% and breached the 3.8% target. We suspect, the HUF 250bn stability reserve recently announced by the government (which will take effect this year) may be a reaction to these developments. In spite of this, we expect money market rates to fall this year as key rates are cut in order to support fledgling growth when a more government-friendly monetary policy council is appointed in March.

PL Fiscal: EU economic official Rehn reiterated yesterday that Poland has to cut its deficit to 3.0% by 2012. He also said that he thought it doable and that he expected Poland to present a detailed plan on how to achieve that by the end of this week. The 2010 deficit likely reached 7.8-8.0% of GDP and the MinFin estimates that measures adopted so far should help to reduce the deficit by 2.0-2.5% in 2011 and by an additional 2.0% in 2012 - that means that Poland has to come up with ideas very soon otherwise it will risk escalation of warnings (within the Excessive Deficit Procedure) and a negative market reaction. We remain bullish on PLN vs EUR as a reaction to higher money market rates. Budget slippage will only increase the pressure on the NBP to hike key rates.

PL Bonds: The MinFin held a successful auction yesterday, selling a total of PLN 2.45bn worth of bonds; PLN 1.31bn was in 4y floating rate bonds and PLN 1.14bn in 12y inflation-linked bonds – the largest amount of inflation-linked debt sold since this type of instrument was first issued in 2004. Total demand for the 4y bond reached PLN 4.62bn (bid-to-cover of 3.52). The results indicate that inflation concerns are driving demand for these kinds of bonds. We think that the chances of a rate hike in March have increased but the council will wait for confirmation of increasing upward price pressure from core inflation data before a rates decision is made. We forecast a 25 bp hike in June.

Traders' comments:

RON: Cash and bond markets are swinging around from one day to the next in a fairly broad range. Bonds started the day weaker but recovered when forwards came under selling pressure and rates in the 3m – 6m segment dropped 20 bps. It looks like players are positioning themselves for next weeks auctions with no real direction one way or the other. Todays auctions will give us a good indication of current sentiment. We think the MoF will have to pay around 7.30 to place its planned RON500m 2017 issuance today after the recent bond correction. Anything above that will be market negative. PLN: Fixed coupon bonds have come under the cosh recently but we now see the market stabilizing a little. 10y bonds were better bid and the curve flattened slightly as a result. We are now only 7 bps off the 12m low in the 10y2y IRS spread.

SKK: The Slovak Republic is tapping its 2016 3.5% fixed coupon SD213 EUR benchmark bond today. Price guidance ms+85.

HRK: USD Eurobonds are under pressure as the market awaits details of anticipated new issuance.

CEE CDS: Range-trading continues.

Sursa: http://www.erstegroup.com

Tags: rates deficit market pressure bonds

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