As we expected the Czech National Bank
left its repo rate unchanged at the 2.50 %
level (see more in the News section) and
this decision worked as a temporary bullish
signal in the Czech fixed-income market.
Bond yields dropped across the whole yield
curve, but it would be a mistake to call it a
bond rally. Despite the fact that the CNB
expects that interest rates will aim north in a
slower pace in a short-term, the market
remains in a defensive mode and continues
pricing in another rate hike till the end of this
year. We, however, believe that a sharp
drop in inflation in October (year-on-year
CPI should plummet from the current 2.7%
to 1.5%) will not allow the Bank Board hike
once again this year.
Today, the short-end of the Czech yield
curve will continue to digest yesterday’s
CNB meeting and implications of the new
inflation projection. Nevertheless, the focus
could be also on the Czech FX markets,
since the koruna seems to have been under
pressure since yesterday press conference
of CNB governor Tuma. Further koruna’s
weakening could easily erase all yesterday
gains. The long end of the curve will wait for
US GDP figures, which should come just
before the closing bell of the Czech bond
market.
(CSOB - Investment research)