The most visible impact of the European second Greek bailout was visible in the Czech asset- swap spreads, which tightened by more than 10 bps as long Czech government bond yields dropped significantly on Friday. However, lower credit risk premium applied on the Czech government debt might be a result of ongoing talks over the budget draft for 2012. Recall that the current ruling coalition wants to cut the government budget deficit from CZK 135bn this year to CZK 105bn in 2012. This will cut supply of Czech government bonds, which is good news for the domestic bond market.
The Polish zloty traded sideways on Friday. The EUR/PLN cross rate closed barely changed despite it even touched 3.97 EUR/PLN intra-day, i.e. the lowest level in past 10 days. Monetary Policy Council member Anna Zielinska-Glebocka said that one or two rate hikes over the next two to three quarters were justified. Hence, Zielinska-Glebocka clearly sees the room for further monetary tightening despite the fact that polish inflation unexpectedly drop to 4.2% y/y in June.
Today, the zloty is back above 4 EUR/PLN level. Inability of U.S. politicians to reach an agreement on a new debt ceiling might, in our view, weigh on the zloty during the week ahead.