Last week the nervousness stemming from euro-zone peripheries was visible across Central European bond markets. So far, it has been mainly visible at FX markets of more vulnerable countries (like in Hungary). The pressure on the fixed income markets is something new for many markets. For instance, the Czech 10Y yield tracked its German counterpart till the beginning of October as Czech bonds were playing a role of safe heaven mirror for a while. Nevertheless the escalation of the crisis in recent weeks led foreign investors to the liquidation of their positions in Czech bonds too. Hence, the spread over the 10Y German bund has widened by more than 80 bps since the mid October.
Meanwhile, negative sentiment prevails also in Hungary (+25 bps on 5Y bond this morning) while the only Polish market performs slightly better mainly due to higher liquidity and partly probably thanks to interventions of the state owned BGK. On the other hand in Slovenia (the euro member), the deterioration of sentiment has been pretty significant as 10Y yield has spiked over 200 bps up to 7% since the beginning of October. Also in Slovakia the tensions have intensified and Slovaks failed in most recent bond auction to attract solid demand.
For the week ahead the sentiment on the eurozone peripheries should be crucial. Nevertheless it seems that even current calm down may hardly stop sell-offs at some markets after breaking through certain levels (EUR/CZK, 10YHUF, 10Y CZ). Beside that also domestic GDP figures may play a role tomorrow. We expect slightly worse outcome of Czech GDP (Q/Q stagnation) and we are basically on consensus in Hungary (0.2% q/q).