On Thursday the Czech bonds lost in the morning after the German Ifo index dropped less than had been anticipated. Later on the Czech papers again with Bunds also reversed the trend, erased morning loss and closed slightly up. The Czech market practically shrugged off a surprising development on the domestic political scene (see the FX section). We, however, do not think that the market should complete ignore the domestic politics. Note, that majority of the CNB Bank Board was named by conservative president. Hence these members would not like a minority government, which would be led by the Social Democrats, and backed by the Communists.
No important statistics are scheduled today. On the domestic scene, the CNB meeting is the most important event next week. However we do not expect any rate change. Since, news related to a forming of a new cabinet have still negligible impact on the market (at least until the CZK remains relatively stable), developments in the euro zone bond market will play a decisive role for Czech counterparts even today.
(CSOB - Investment research)