Czech government bond yield slipped to all-time lows as foreign demand boosted bond prices. The foreign demand for the Czech government bonds has been boosted by two factors: first, low-yielding environment generally support all bond markets, which do not face significant credit risk; secondly, there is some reallocation from vulnerable bond markets from the euro-zone, which brings support bond outside the monetary union. We think the bullish sentiment on the Czech bond market might survive some time, but there must not any severe sellof on risky markets, which would force foreign investors to look for cash.
There could be more successful stories on CE bond markets. The Hungarian could such an example too, though yesterday’s release of the June inflation report was a bit disappointing (the headline CPI moved ton 5.6% y/y). Nevertheless, the dovish wing in the MNB monetary Council becomes more and more visible. We think that a rate cut will be on the agenda once the IMF/EU talks about a new stand-by loan will be fished. This could happen either in August or in September.