Erste Group: CEE Macro/Fixed Income Daily
September 24, 2012
PL Macro: Core inflation in August came in at 2.1% y/y, down from the 2.3% figure we had previously seen for a couple of consecutive months. In monthly terms, inflation net of food and energy prices dropped by 0.1% confirming the easing of inflationary pressure. This is another piece of data increasing market expectations for a rate cut which we believe will come by November at the latest. Current 3m WIBOR is at 4.75%. The 1x3 FRA is at 4.78% but the 2x5 FRA is at 4.69% so it appears the market shares our view that there is a high probability that rates will be cut in November.
RO Bonds: Late last week, the MinFin sold a planned RON 200mn in 4-year Tbonds at an average yield of6.29%, lower than at a previous similar auction held in July (6.41%) when the political crisis was in the process of escalating. As the political turmoil reached fever pitch, the MinFin was forced to scrap a 4- year T-bond tender later in August. Once the political environment calmed down in late August and pressures on the leu lessened, the central bank resumed greater injections of liquidity into the local market through 1-week repos, supporting MinFin issuance and yields retreated on the primary market. We still see 5-year T-bonds at 6.8% in December 2012 as the parliamentary elections are fast approaching and inflation is likely to overshoot the central bank’s target range in September, October 2012 and even in December. We forecast EURRON at 4.55 in December.
HU IMF & FX Bond Issuance: András László Borbély, Deputy CEO of the Government Debt Management Agency (AKK), said on Friday that the Agency would probably issue a foreign currency bond, however only after a deal with the IMF/EU on financing was reached. He added that the agency preferred a USD-denominated bond. The subject of FX bond issuance has become an important topic in the last couple of days on the Hungarian market given the current supportive market sentiment, decreased CDS spreads and FX bond yields. The likelihood of a bond issue prior to the conclusion of a deal with the IMF has decreased following this comment from the AKK, although it still cannot be excluded completely, given that the negotiating parties points of view on the most relevant economic policy questions still differ strongly. Reaching an agreement with the IMF/EU will not be a quick and easy process, and the government might want to capitalize on the current favourable external market conditions. Our baseline scenario assumes that an agreement will be reached and our year-end projection for the 10y bond yield is 7.30%. Our EURHUF forecast is 282.5. Traders’ Views: CEE
CEE government bond markets were relatively calm on Friday both locally and on the international capital markets. There wasn’t much action in FX or CDS markets either. The corporate primary markets have become much more active though. PKO Bank Polski SA sold USD 1 bn of 10 yr notes on September the 19th at a yield of 4.63% and MOL announced the planned sale of USD 500 m 7 yr bonds at a yield of 6.438%. Last week, OMV issued EUR 750 m each in 2 tranches of 10 yr and 15 yr senior secured bonds at ms+93 & ms+135, respectively. Erste Group is planning the sale of a USD benchmark 10NC5 subordinated T2 issue with expected ratings of BBB/BBB+. Price talk is in the mid/high 6.00% range. Voestalpine was recently roadshowing with a conglomerate of German, French and Italian banks, so expect news of a capital market transaction soon here as well. This morning, Agrokor announced the sale 475 m Euro equivalent (EUR/USD) of 7NC3 senior B2/B rated bonds.