Czech bonds acted a little bit different than
we expected yesterday. Although the
domestic market initially played some
catching up with core bond markets, that fell
sharply on Friday (payrolls) after the Czech
market closed, the negative trend changed
rather soon and yields began to fall. Hence,
the market stepped further in its decoupling
from core markets as the bonds closed
actually higher yesterday. The explanation
probably lies in the domestic FX market as
the koruna set up a new all-time high and
the stronger currency of such a small open
economy by definition implies lower inflation
expectation and a diminished prospect for
monetary tightening.
Given the empty domestic calendar, the
market will probably stay in a wait-andsee
mode ahead of Wednesday’s crucial
release of inflation figures, which is
expected to drop sharply. While the front
end of the curve definitely continues to
watch the developments in the domestic
forex market, the long end should mirror the
developments in the euro bond market.
(CSOB - Investment research)