The key Thursday’s event on the Czech bond market was of course meeting of the central bank’s board. The bank hold rates unchanged, in line with our expectation. It disappointed part of the market, which bet on a cut. However, governor Tuma openly said that the board discussed the rate cut. It means if there is a change of the repo rate on the next meeting it will be a cut. We wrote before that there was room for the rates to go lower. Tuma argue lower inflation and strong koruna are main factors in favor of lower rates. He added that political situation has no importance for the bank and for the markets, too. The most impressive for us was the openness of the governor, who came into real details and showed clear opinion on the next development. Nevertheless, the bonds was little changed yesterday. They again rather tracked core markets than reacted to domestic information. There was only small correction of previous drop of front end of the yield curve.
Today the market might be quiet. The central bank left the markets with hope for a rate cut on some meeting to come. Thus there is no reason for the change of the mood.
(CSOB Investment research)