The yields along the whole curve recouped some 2-4 bps. Bonds got some boost from German Bunds. Latter on, central bank’s inflation report fueled positive atmosphere on the money and bond markets. The report repeated that inflation risks are minimal and inflation remain under inflation target for significant period of this year. Nevertheless the markets were particularly sensitive to the statement that output gap will not close sooner than in second half of 2006. In other words the central bank will not raise its repo rate sooner than in the middle of the next year. Governor Tuma had already said it last week after the meeting, but investors likely couldn’t believe it. The money market had priced one hike in Q4 2005 until yesterday. Nevertheless, such long outlooks of the central bank didn’t proved to be accurate guidance of future rate development. Today, the market will get another incentive, since the Minutes are due. Nevertheless after yesterday’s price action Minutes hardly may bring anything really surprising. Hence US payrolls due in the afternoon may grab more attention. Hence tracking of Treasuries may prevail ones more.
(CSOB - Investment research)