Especially the front end of the yield curve moved lower. Rising bets on a rate cut were visible in the afternoon, when short yields and also money market rates were pushed lower. We also changed our expectation and now opt for a rate cut. The strong koruna might be the key incentive for the bank. The koruna is almost 5 % stronger since November last year. Moreover inflation is one percentage point below CNB’s outlook from October. Finally the government is also unhappy with the koruna at current levels. Therefore bonds may march higher gain. The short dated bonds may over perform.
(CSOB - Investment research)