Czech bond yields headed north on Friday
as the market digested further Thursday’s
information about higher bond supply in the
last quarter and the market partly followed
the negative development in core bond
markets Contrary, the market virtually
ignored the release of CNB’s Minutes and
details of a new inflation report, though they
were quite interesting. As we comment
Friday’s price action, it is worth adding that
the front end of the curve closed slightly
higher despite firmer Czech koruna, which is
quite unusual.
As concern the CNB Minutes, they showed
that the Bank Board is highly uncertain
about the medium-term inflation
development as the new inflation projection
indicates that the monetary-relevant inflation
(adjusted for the first-round effects of
changes to indirect taxes) should reach
almost 4.0%. If it happened, it would
obviously imply tough monetary
tightening, but the Board is not sure
about this projection, partly because these
catastrophic scenarios were predicted
several times in the past, but they did not
materialize. So, the bank still sees just a
gradual rise in interest rates.
Today, initially the Czech bond market will
be trading on Friday’s sell off in core bond
markets, which might push yields further up
– especially at the long end of the curve.
Later on as we expect that the German
Bond market should slip into sideways
mode, the Czech bond prices should
consolidate their fall too.
(CSOB - Investment research)