Erste Group: CEE Macro/Fixed Income Daily
October 12, 2012
O Bonds: The MinFin yesterday raised the planned RON 250mn in 3-year Tbonds at an average yield of 6.53%. A similar bond tender was held in early February 2012 and the average yield at that time was 6.79%. Investors put in bids totaling RON 598mn which corresponded to a robust bid-to-cover ratio of 2.4. Money market rates nudged up this week, as the central bank capped the liquidity injection through 1-week repos at RON 6bn from RON 12bn in the previous week in a bid to contain the leu depreciation which yesterday hit a two-month low of 4.5698 (central bank official rate). We see 5-year T-bond yields at 6.8% in December and the EURRON at 4.55, while the National Bank will continue to put the managed floating regime to work to prevent volatilities from running too high.
HU Macro: Yesterday the September CPI figures surprised to the upside, showing a yearly price increase of 6.6%, even a bit higher than our somewhat pessimistic 6.5% forecast. An increase of food and fuel prices, in addition to telecom and tobacco price increases, caused the 0.4% m/m increase. While the fast growth of prices are mostly tied to factors that the central bank cannot do anything about, the core CPI also edged up to 5.3% y/y and the constant tax rate index also rose to 4.1% y/y, quite a high figure in a recessionary environment. That said, the CB may slash the policy rate further in October to 6.25% given the continued decline of risk premia and the slight majority of dovish members in the MPC. We expect the base rate to be cut to 6.00% by year-end and expect the policy rate to stand at 5.00% at the end of next year if the risk assessment does not worsen significantly.
CEE Fixed Income S&P’s decision to downgrade Spain to the verge of junk rattled markets at the beginning of yesterday’s trading session but as the day progressed sentiment improved and we saw a large rally in CEE Eurobonds towards the end of the session. There was a big drop in risk premia on CDS, on yields of REPHUNs but also long dated ROMANIs. We also noted strong demand for Polish Eurobonds in both EUR and USD in spite of PM Tusk’s call for a parliamentary vote of confidence today at 0900. Hungarian CDS rallied hard in spite of a jump in inflation that exceeded expectations and hit a 4 year high. True, Viktor Orban was quoted as saying Hungary doesn’t need a bail-out during his visit in Berlin but we doubt that was the catalyst for the move. The Hungarian Debt Agency said Hungary is preparing to issue the equivalent of HUF 60 bn in inflation linked Euro denominated retail bonds in the local market but would only attempt to tap the international capital markets after a deal with the IMF, according to Laszlo Andras Borbely, deputy chief executive at the state debt management agency. Taken together it sounds like the government is aiming for a Flexible Credit Facility like Poland rather than a Stand-By Agreement like Romania. Only time will tell if Hungary can get what it wants but the IMF also has a vested interest in supporting Hungary as over EUR 3bn of aid comes due next year. In any case, the local debt market continues to finance the government. The AKK recorded the largest oversubscription for 12 m T-bills in 3 years when the bid/cover ratio hit 4.2x at yesterday’s auction. The yield fell to 6.3%, 23 bps below the previous auction 2 weeks ago, and the AKK increased the issue size from HUF 45 bn to HUF 65 bn.