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2022/10/10 / Erste Group Research

Bottom fishing may start soon

CEE central banks should end their interest rate-hikes cycle in 4Q22. Over the next three quarters, we forecast a huge correction in CEE bonds - about a 200bp decline of 10Y yields in Hungary and 80-140bp in Czechia, Poland, and Romania.

Although inflation has not stopped climbing, several central banks in CEE have already announced the end of the rate-hiking cycle. This does not mean that they will throw the towel into the ring and resign from their fight with high inflation, but they see the current level of interest rates as sufficiently high for curbing domestic demand, especially given signs of significant deterioration of economic sentiment. They also intend to use other tools for the reduction of the liquidity surplus, which may support the currency and thus effectively contribute to the tightening of monetary conditions.

Costs of both domestic and foreign borrowing surged throughout 3Q, pushed by accelerated tightening around the globe and increased risk aversion. In September, turmoil on the UK bond market just exacerbated the situation. On top of that, there were some home-grown problems, like a lack of progress in the resolution of the EC’s concerns on Hungary’s compliance with the rule of law requirement, which escalated into a temporary halt of EU funds from the current programming period and put extra pressure on the HUF. In our baseline, we expect Hungary to deliver some progress in 4Q22, which should unlock access to EU funds and provide more relief to the HUF, the central bank and the government. We believe that joining the European Public Prosecutor Office could be used as a wild card by Hungary if all other proposed actions do not lead to a resolution.

After the end of monetary tightening in CEE, we expect yield curves to get (even more) inverted. Over the next three quarters, we forecast about a 200bp decline of 10Y yields in Hungary and about 80-140bp in Czechia, Poland, and Romania. Yields for the Euro Area member countries of Croatia, Slovakia and Slovenia should continue to rise, about 30-50bp over the next three quarters, but remain below other CEE peers.

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General information

AuthorErste Group Research
Product nameCEE Bond Market Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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