The data Czech bonds inched lower yesterday, but the market was absolutely dormant. Bond prices only mirrored slight drop of German Bunds. Today the activity might be higher, as world markets returns to normal live after holiday. The first quarter average wage should not affect the market. Traders await fresh inflation figures due next week. Hence price action of Bunds will be decisive again. Polish bond yields dropped gently on Monday, after a bullish statement on the inflation outlook delivered by the minister of finance. The market opened at the levels of 5.24%, 5.36% and 5.30% for 2Y, 5Y and 10Y respectively. The yields remained flat till the Minister of Finance Miroslaw Gronicki released his inflation outlook. He pointed out that after the fall of inflation to 2.2-2.3% y/y in May, he would expect it to bottom out below 1% y/y in July. This resulted in 5 bps drop in yields for 5Y and 10Y maturities. Our estimate of inflation in May at 2.3% y/y is in line with the Gronicki’s view. However we are not so optimistic on the depth of the fall in inflation during the summer, since we assume that significant weakening of the zloty due to high political risk premium and low market liquidity may start from the end of June on GDP growth in Q1 will be in the centre of market’s attention today. As our estimate of the economic growth (2.7% y/y) is gently lower than the market consensus (3% y/y), we expect a good climate to dominate for the Polish bonds. We expect a further drop in GDP growth mainly due to the weaker private consumption indicated by poor retail sales results. We believe in a further growth in investments in Q1, but not exceeding 10%, as the weather conditions were not favourable for starting works in the construction sector.
(CSOB - Investment research)