Bond prices continued to fall last week, and the trend of
short-term yields rising faster than long-term ones was also
maintained. While 2Y yields went up by 18 bps, yields with
10Y and longer maturities rose by only 8 bps. The main
event was the 10Y bond auction, where, in accordance with
expectations, demand more than doubled the supply.
Nevertheless, the developments on the Czech market
depended particularly on events on developed markets,
where a bearish mood dominated. The fall of the Czech
market was slightly stronger that that of Eurobonds this
time, and thus the spread of 10Y yields widened slightly.
The fall of other Central-European markets is also having a
negative impact. The development on the money market,
where speculations of an early hike in official rates have
increased significantly, also deserves attention. The FRA
3x6 has already climbed to 2.05%, and this means that the
market expects a rate hike no later than January 2006.
Individual Pribor rates also rose, e.g. the 3-month rate by
4 bps to 1.84%. Our opinion is that this rise is quite
exaggerated because there are currently no indications that
the central bank is going to raise rates. After all, the latest
minutes of the CNB Board meeting are very neutral, with
the central bank mentioning factors that strongly encourage
a rise in inflation as well as those that strongly encourage a
fall in inflation.
A lot of new data will be released this week. Above all,
September’s inflation figures, which will show a significant
rise in year-on-year inflation rate, will be published at the
beginning of the week. The PPI will not be very favourable
for the market either. Finally, industrial output should show
a reasonable rise. Thus the domestic data will probably
boost the current negative trend. Nevertheless, events on
developed markets, where a reversal of the negative trend is
not very probable either, will again be crucial.
(CSOB - Investment research)