Czech bonds started to be affected by the negative mood on
foreign markets in the previous week. The negative mood
was triggered by the surprisingly positive German Ifo index
and boosted by the selling mood in the United States, thus
the yield of 10Y bond jumped by 15 bps to 3.62% up to
Thursday’s CNB Board meeting. Furthermore, the Czech
National Bank surprised markets on Thursday, when
unexpectedly it raised rates by 25 bps to 2.00%. This
particularly affected short-term bonds, where yields of 2Y
bond rose by 20 bps from 2.60% to 2.80%. Yields of 10Y
bonds went up by 18 bps to 3.8%.
Markets are eagerly awaiting Friday’s minutes of the CNB
Board meeting this week. We expect that the vote on a rate
hike was narrow, and the minutes of the meeting might
calm the expectations of the bond market about the future
development of rates. Although Governor Tůma admitted in
his statement to the media that he saw room for a rate hike
within the forecast period, he pointed out that some CNB
Board Members viewed the rate hike as a preliminary
measure. In other words, given the uncertain development
forecast of oil prices and concern about a rate hike in the
Eurozone, the CNB probably wanted to hedge against a
sudden increase in the interest-rate differential.
(CSOB - Investment research)