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Erste CEE Macro Comments

The EURHUF forward for year end is equal to the highest forecast of 19 banks participating in a Bloomberg survey.

Analysts' views:

HU Rates: After the 75bp increase conducted since November to 6.00%, we believe that the base rate will be left unchanged today. The minutes of the latest rate setting meeting indicated that the Council decision in January was very tight. We think that the slow revival of domestic demand will continue to limit increases in core inflation which is also underpinned by the better than expected January inflation figure and last Friday's data release which showed that ex-bonus private sector wage growth remained unchanged in December vs. November last year (at 3.0% y/y). Market sentiment regarding Hungarian risk has also improved so far this year. After March, the majority of the Council is expected to be replaced by new members who are assumed to be likely to pursue a more dovish policy. In fact, our slightly more favorable view on price developments compared to the central bank's forecast is the basis for our projection that the base rate will even be reduced slightly, to 5.75%, by yearend. This would be positive for long term bonds and the forint.

RO-Bonds: The Romanian MinFin will start issuing Euro denominated bonds within the next two weeks, said state secretary Bogdan Dragoi. The tenor for the first issuance will most likely be five or ten years since the current residual maturities are four and seven years. The MinFin is looking to raise EUR 500 million. This transaction is part of the 3 year EUR 7bn EMTN programme announced last year which was put on hold. If the bond sales prove successful, this will pave the way for lower yields on the secondary market given that the money market is awash with liquidity and non-government lending is likely to remain sluggish. We maintain our yield forecast of 6.8% for 5-year T-bonds by September.

Traders' comments:

RON: Yields drifted lower but trades were scarce. We expect the MinFin will have to pay around 6.90% in the 1y T-Bill auction today if they want to place the entire RON 1.5bn on offer, extending the recent trend of higher rates.

HUF: We think the bond yields will drift higher this week ahead of the Thursday auction.

HRK: Strong demand for Croatian domestic bonds, especially the 2020. Both HRK & EUR denominated bonds traded on the offer side. Euro linked bonds look attractive at 300 bps over German benchmark bonds.

CEE CDS & Credit: Friday was a slow and uneventful session in a nervous environment dominated by unease over the situation in the Middle East. In Cash, the flows are a little more 2 way now as profit-taking sets in.

Sursa: http://www.erstegroup.com

Tags: bonds euro

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