Czech bonds awaited outcome from the CNB meeting yesterday morning. Later on, they fall as the central bank stayed on hold and the bonds caught up losses of German Bunds. The yield curve significantly steepened as the short yield were little changed while the long end added 6 bps. The central didn’t met our expectation and left rero-rate at 2%, but governor Tuma revealed that the Board discussed a rate cut. That’s evident, that a strong koruna was behind that discussion. The bank didn’t lower its outlook for inflation for this and next year. However, board members have likely been more optimistic view on inflation, as governor Tuma quoted that they see the risk being rather anti-inflationary. Vice-governor Niedermayer warned that the bank would cut interest rates if the koruna rose further. The finance ministry said that after issu e in JPY didn’t plan bond issue in foreign currency this year. That’s negative for CZK bonds, as the government may tap domestic market less than expected. Today, the bonds may recover at least partly as the CNB was pretty dovish yesterday. Nevertheless, the market may track German bunds most of the day anyway.
(CSOB - Investment research)