Research Detail
| Tail-wind for bonds from lower interest rate environment and multi-year consolidation plans |
Tail-wind for bonds from lower interest rate environment and multi-year consolidation plans Although inflation is to edge higher due do a diminishing base effect, which contributed to the very fast collapse of inflation in previous quarters, inflation is expected to be contained at the level which allows modest rate cuts and at the same time keeps real interest rates positive. The lower interest rate environment together with fiscal consolidation prescribed by the renewed EU fiscal framework should be supportive of CEE bonds. All in all, after some market correction from beginning of year, we expect long end of LCY yields to drop with lower key rates. Finally, Croatia, in expectation of rating upgrades, is seen at narrower spreads compared to Slovakia. Six CEE countries have already completed over 70% of their 2024 net issuance by the end of June. Croatia and Czechia, two countries with the lowest deficits among CEE countries, have been less in a hurry to borrow. Croatia is preparing to place 3-year and 10-year bonds in July, aiming to raise EUR 2bn. The first issuance will primarily target retail investors (approx. EUR 750mn), while the 10-year paper (about EUR 1.25bn) will be offered to institutional investors. The Czech MinFin was reluctant to borrow excessively, waiting for more rate cuts to be delivered by the CNB. After heavy foreign issuance conducted in 1Q24, foreign borrowing eased considerably. In 2Q24, Romania borrowed EUR 3.2bn in a dual tranche of 8Y and 13Y Eurobonds, Serbia issued a USD-denominated bond in a volume of USD 1.5bn and Slovakia borrowed CHF 625m through a dual tranche of CHF-denominated bonds (4Y and 10Y). In 2H24, several debt agencies may diversify their foreign issuance and opt for small volumes of Panda or Samurai bonds (Hungary, Romania). Larger FX benchmarks are unlikely, but could be considered in case of budget overruns or delays in RRF payments. Check the reports for details on the whole region an each country separatly. |
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| 2024/07/02 / Erste Group Research |
Tail-wind for bonds from lower interest rate environment and multi-year consolidation plans Although inflation is to edge higher due do a diminishing base effect, which contributed to the very fast collapse of inflation in previous quarters, inflation is expected to be contained at the level which allows modest rate cuts and at the same time keeps real interest rates positive. The lower interest rate environment together with fiscal consolidation prescribed by the renewed EU fiscal framework should be supportive of CEE bonds. All in all, after some market correction from beginning of year, we expect long end of LCY yields to drop with lower key rates. Finally, Croatia, in expectation of rating upgrades, is seen at narrower spreads compared to Slovakia. Six CEE countries have already completed over 70% of their 2024 net issuance by the end of June. Croatia and Czechia, two countries with the lowest deficits among CEE countries, have been less in a hurry to borrow. Croatia is preparing to place 3-year and 10-year bonds in July, aiming to raise EUR 2bn. The first issuance will primarily target retail investors (approx. EUR 750mn), while the 10-year paper (about EUR 1.25bn) will be offered to institutional investors. The Czech MinFin was reluctant to borrow excessively, waiting for more rate cuts to be delivered by the CNB. After heavy foreign issuance conducted in 1Q24, foreign borrowing eased considerably. In 2Q24, Romania borrowed EUR 3.2bn in a dual tranche of 8Y and 13Y Eurobonds, Serbia issued a USD-denominated bond in a volume of USD 1.5bn and Slovakia borrowed CHF 625m through a dual tranche of CHF-denominated bonds (4Y and 10Y). In 2H24, several debt agencies may diversify their foreign issuance and opt for small volumes of Panda or Samurai bonds (Hungary, Romania). Larger FX benchmarks are unlikely, but could be considered in case of budget overruns or delays in RRF payments. Check the reports for details on the whole region an each country separatly. |
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Download PDF (2.3MB)
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