Spanish concerns weighed on CE currencies on Friday and knock the forint and zloty off the recent highs. Also the government yield spreads toward German bund have somewhat widened, but the yields in absolute terms remain low.
Czech 10Y yields have dropped to all-time lows, with investors being very eager to buy Czech securities in the last auction. A similarly positive situation exists in Poland, where the state is borrowing at the lowest cost over the last six years.Although the Czech and Polish markets are far from being safe heavens, the relative quality of Czech and Polish debts has been objectively improving.
While the Czech Republic’s public budget may not necessarily meet the exact target for this year, the deviation from the planned deficit of CZK 105 bn is unlikely to be large, and a deficit close to 3% of GDP is a success in the current pan-European context. In addition, the Czech government is reasonably prefinanced from the first half of the year, with only 5% of the issues planned for this year still left.
Poland’s government deficit should get below 3% GDP threshold, with more than 80% of its funding needs for this year already covered. Furthermore the Polish budget plan is based on a conservative economic growth forecast of 2.5%, which is likely to be exceeded.