On Thursday, Central European currencies failed to take advantage of the weakening of the (save haven) US dollar. The only exception was the zloty as the EUR/PLN cross rate dived below 4.30. The forint strengthened as well but due to early losses closed barely changed.
Meanwhile, Hungary sold HUF 59bn of government bonds. Despite the fact that the situation in the euro zone has significantly worsened over past few weeks (yield of 10Y Spanish bond hit 7 % yesterday), bid-to-cover ratio in case of the 10Y bond exceeded 2.5 and yields slightly decreased in comparison with the previous auction as the market eyes a successful deal with the international lenders on a stand-by loan.
We still believe that the Greek election and situation in Spain will drive the price action in regional markets in sessions ahead. It is difficult to anticipate on the events like the Greek elections. The rumours on coordinated action has supported very recently riskier assets (including those in Central Europe) to some extent.
Looking to the day after (the elections), we would warn that eventual optimism on a main-stream parties “victory” should be short-lived. While a Syriza victory could lead to a fast exit of Greece, the problems won’t be resolved by the main stream parties’ victory. The next review of the IMF/EU should once more lead to the conclusion the programme is off track and the issue Greece will continue to haunt markets.