Czech bond markets eyes bond auction
Today, the Czech bond market is ready for an auction of the government bond benchmark with maturity 2023. Despite tensions in euro zone debt markets and the increase in Czech CDS in the last days we believe that today's bond auction with variable coupon (volume of 8 billion) should meet solid demand. The outcome of the auction should not be hurt by yesterday's comments of traditional hawk member of the CNB Bank Board Janacek.
He reiterated that the CNB should end the period of record low rates. This action should be supported by an upward revision of GDP growth. Janacek can imagine that tightening could bring real interest rate to zero next year. This is in our view a realistic estimate, though we see the first increase of the repo rates by 25 bps in November.
The Hungarian forint recovered yesterday as risk appetite revived on better equity market sentiment. The forint strengthened more than 1% from EUR/HUF 273 to 270 and then corrected back into the 271-272 EUR/HUF range.
The bond market also rallied and yields lowered about 5bps. Foreign bond holdings were surprisingly resilient and they remained close to the historic high level during recent currency weakening. This implies that demand for Hungarian bonds has been quite resilient.
The Polish zloty had a successful session on Tuesday as it partially erased losses against both the Euro and Swiss franc. Significantly worse than expected industrial production data for June (2.0% year-on-year vs expected 5.7% y-o-y) did not have a significant impact on the zloty’s strength so far. Producer prices grew in line with market expectations.