Erste CEE Macro Comments

It will depend on incoming data whether the hikes will add up to 100bp or slightly below. Jan Winiecki said that if there is a vote on a hike, he will support it. Clearly the inflation data triggered support for an earlier than expected move. If core inflation data surprises to the upside we will be forced to review our forecasts. Currently, we expect a first hike in June with hikes totaling 50 bps in 2011.

SK Eurobonds: Yesterday, Slovakia re-opened a 5Y issue in the syndicated auction. The bond priced below initial price guidance of mid-swaps +85bp at 80bp. Compared to the originally planned EUR 1bn, the ministry sold EUR 1.25bn. With an ambitious fiscal consolidation underway, we expect yield spreads over German Bunds to tighten by about 20bp by the year-end. The debt agency said it may also tap 2020 bonds in 1H11.

UA Bonds: Yesterday, the Ukrainian government placed USD 1.5bn in Eurobonds out of a total of USD 4.5bn planned for this year. The government borrowed USD 0.5bn more than initially announced due to high demand which reached USD 3.5bn from around 250 bidders. The 10Y bonds were placed at a 7.95% yield (below initial price guidance of 8%) with 75% bought by overseas investors. The news is bond and FX positive, in line with our forecasts.

RO Bonds: The MinFin sold RON 284mn in a tap of a 7-year residual maturity T-bond yesterday at an average yield of 7.35%, slightly higher than in a similar tender held in September last year. The ministry had initially planned to sell RON 500mn and total bids amounted to RON 810mn. We still see potential for 5-year yields to decline towards 6.8% in September once Romania makes further strides in the public reforms and returns to economic growth after two years of recession. Clinching a new precautionary deal with the IMF in April should increase investors' appetite to buy Romanian government bonds.

Traders' comments:

RON: The market reaction to the poor auction result was muted as the RON cash, fx and fixed income markets continue to consolidate.

PLN: Another day of curve flattening in the PLN bond market. The 2y benchmark bond is better offered and long end bonds better bid but activity is higher in IRS where the 10y2y actually steepened. Expectations of lower bond issuance going forwards as the outstanding debt stock approaches the 65% limit is supporting the long end of the bond market to a certain extent.

CEE CDS: Range-trading continues. Once again, strength in major equity markets fails to kick-start a rally in CDS but in the cash market , CEE corporate bonds are still better bid.