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2023/01/18 / Erste Group Research

Yields heading south this year

CEE bond markets started year on strong note. Inflation has already peaked and will start visibly falling in spring, which should be main game-changer for bond market development. First rate cuts are expected in Czechia and Hungary already this year.

After experiencing the worst performance year on CEE bonds markets since the Great Financial Crisis, CEE bond markets started this year on a strong note. 10Y local currency bonds rallied, with yields dropping 70-180bp YTD. Hungary, Romania and Slovenia leveraged the positive momentum on global fixed income markets and issued Eurobonds and sustainable bonds in a large amount in the early weeks of January, with the first two countries already completing half of their planned international issuance.

We expect this year to be rather positive for CEE fixed income markets, as yields should be dropping throughout the year from their elevated levels. The main game-changer should be inflation, which we believe has already peaked and will start visibly falling in spring. External factors such as global food and energy prices have already been easing for some time and should contribute to disinflation, along with weakening demand pressures stemming from dented real wages and slower credit growth. We expect two central banks, the Czech and Hungarian, to start normalizing their monetary policy with the first rate cuts already this year.

Nevertheless, bond markets will remain volatile and some setbacks can be expected. The first might be a slight correction in the next couple of months after the exceptionally strong beginning of the year and given that the ECB is still in hiking mode. Then, although we bet on Hungary meeting all of their super-milestones, which should unlock access to RRF funds and the frozen part of Cohesion Funds, there could still be a very bumpy road, via which Hungary’s rating could be at stake. When it comes to ratings, we see a fair chance of Romania’s negative rating outlook being removed by Fitch, while a downgrade of Slovakia, which has been bearing a negative outlook from all three major rating agencies, is a viable option.

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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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