|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.
Download PDF (1.1MB)
|Author||Erste Group Research|
|Product name||CEE Bond Market Report|
|Topic in focus||FX, Macro/ Fixed income|
|Economy in focus||CEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia|
|Currency in focus||Croatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar|
|Sector in focus||-|
Any information, material and services regarding financial instruments and securities provided by Erste Group Bank AG or any of its affiliates (collectively “Erste Group“) on this and any linked website hereafter (jointly the “Websites”) shall be exclusively to investors who are not subject to any legal sale or purchase restrictions (the “Interested Party“).
The publication and distribution of information as well as offering and selling of products and services described on the Websites is prohibited by law in some jurisdictions. For this reason, persons in countries in which the publication as well as the offering and selling of products and services described on the Websites are not permitted by law, must not enter the Websites and/or acquire the products displayed on the Websites.
Neither Erste Group nor any third party shall offer access to the Websites or offer the products to especially, but not limited to citizen/residents of the United States and “U.S. person” (as defined in Regulation S under the US Securities Act 1933 as amended). For this reason, the distribution or redistribution of the information, materials and products into United States or into any other jurisdiction where it is not permitted under the applicable law, as well as to the citizens/residents of these countries shall be prohibited. The securities displayed on the Websites have not been and will not be registered under the US Securities Act of 1933 and trading in the securities has not been approved for purposes of the US Commodities Exchange Act of 1936. For this reason the securities may, inter alia, not be offered, sold or delivered within the United States or, for the account and benefit of U.S. persons.
The Interested Party is solely responsible to examine, whether he may enter the Websites under the law applicable to it. Erste Group shall not be responsible for the distribution of content of any of the Websites to individuals or entities which provide false information about their right to enter the Websites. For this reason Erste Group shall not be liable for any legal claims or damages which may result from the unauthorized entering or reading of the Websites.
By agreeing to this hereto, the Interested Party confirms that
(i) It has read, understood and accepted this Information and the Disclaimer;
(ii) It informed itself about any possible legal restriction and warrants that it is not restricted or prohibited to enter the Websites according to any law applicable; and
(iii) It does not make available the contents of the Websites to any person who is not qualified by law to enter the Websites.