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Erste Group: CEE Macro/Fixed Income Daily

November 16, 2012
Analysts’ view: 

HU Auction: Yesterday’s bond auctions proved successful, as demand for papers was relatively high. The Debt Management Agency sold HUF 55bn worth of papers altogether, HUF 10bn higher than planned. Yields hardly changed compared to the secondary market levels from a day earlier. Compared to the latest auction levels held two weeks ago, there was a more considerable decline (24bp) just in the case of the 3-year paper. The maximum yields of 3, 5 and 10Y papers were 5.95%, 6.32% and 6.82%, respectively. In the afternoon at the non-competitive tender, the Debt Management Agency sold an additional HUF 16.3bn from the three papers, altogether. We continue to expect the 10-year bond yield to stand at 7.1% at the end of December. 

RO Bonds: The MinFin sold 3Y bonds worth RON 300mn as planned at an average yield of 6.55%. Investors submitted bids worth RON 544mn. After covering the gross funding needs for 2012, the MinFin will try to again issue Eurobonds on the global markets by the end of this year to improve its liquidity buffer. At the same time, this will consolidate the NBR’s FX reserves, which are under pressure from the repayments to the IMF and the poor absorption of EU funds. Today, debt managers plan to sell EUR-denominated bonds maturing in 2014 worth EUR 150mn on the local market. This could be seen as an attempt to avoid FX outflows from Romania after the recent repayment by the MinFin of a EUR-denominated bond issued on the local market. Our forecast for 5Y yields is 6.6% in December. 

TR Macro: The 12-month rolling C/A deficit fell to USD 55.8bn (7.2% of GDP) in September, from USD 59.5bn in the preceding month. USD 1bn of net gold exports amplified improvement in the external balance, given a net gold import of USD 1.4bn in September last year. In seasonally-adjusted terms, and excluding gold, the C/A deficit seems to be stabilizing. Meanwhile, in 12-month rolling terms, the central government budget primary surplus declined to 1.0% of GDP, from 1.1%. The 12-month rolling budget deficit also widened to 2.5%, from 2.3%. These figures were a tad weaker compared to the government’s official year-end estimates. More importantly, VAT collection on imports rose 15% y/y in USD terms, indicating that the downtrend in imports is likely to pause in October, and reiterating the risk of a slight increase in the C/A deficit in 4Q12. Accordingly, while we revise our 2012 year-end C/A deficit forecast to USD 57bn (7.1% of GDP), down from USD 59bn, we continue to foresee a slight widening of the deficit in 4Q12. This is in line with our cautiously optimistic stance on the currency and 2.04 estimate for the year-end FX basket (0.5 USD/TRY+0.5 EUR/TRY). 

Traders’ Comments: 

CEE Fixed Income: CEE fixed income markets traded relatively stable in local and foreign currency on the back of another day of weak equity markets in the US and Europe. Hungarian Eurobonds showed some sign of weakness with the mid part of the curve trading slightly wider in yield. In Romania we have a reopening of locally issued EUR bond where the MoF intends to issue EUR 150 mn. We expect bids to come around 3.45% in yield. In addition, Romania issued 3Y local RON bonds yesterday at higher than expected yield (6.6% highest and 6.55% average), while expectations were at 6.5%. As a result the curve steepened around 5-10 bps. In CEE corporate bonds we continued to see some sellers reemerging but with prices overall still holding firm. For those who are still looking for yield in corporate bonds we can offer HRELEC 17 at a Price/Yield of 103.25/5.247%.