September 28, 2011 |
|Analysts’ view: |
PL Budget: The Polish government approved the 2012 budget yesterday. Assuming 4% economic growth, they foresee a PLN 35bn cash-based deficit (about 2.5% of GDP) which is a bit above this year's expected PLN 30bn. The government also passed its debt management strategy in which it expects Poland's debt to decline to 53.8% of GDP in 2012 and then to 53% of GDP in 2013. Even though this year the government has done little to embark on a path to long term fiscal sustainability, this year's budget is turning out about 25% better than originally planned. The primary balance has improved by some 2.1% points compared to 2010. Our forecast for EURPLN at 4.2 and 10y government yields of 6.10 at the end of the year reflect starting fiscal consolidation.
HR T-Bills: Although no auctions were scheduled for this week and market liquidity conditions are currently tight, the MoF decided to issue HRK 150mn 12M HRK paper and 6.2m 12M EUR-linked T-Bills. Demand was subdued. Only HRK 191m and EUR 6.67m were tendered. The MoF had planned to issue EUR 20m of EUR-linked T-Bills and fell well short of its expectations. The average yield increased by a modest 8 bps compared to the most recent EURlinked T-Bill auction to 4.25%, however, the average yield on the HRK T-Bill increased by a much larger amount (by 50 bps to 4.5%). The CNB is aiming to keep liquidity tight to dampen exchange rate volatility and this comes at the cost of higher yields. That said, refinancing needs in October and November are modest and we do not anticipate roll-over problems but 10 y government yields may end higher than our forecast of 6.50 by year end.
HRK Local & Eurobonds: The yield curve steepened as yields at the long end of the curve moved up and the Croatian bond market failed to rally along with their Polish and Hungarian peers. In CROATE 6.25 2017, we are now at yield levels only 75 bps below those documented in 2009. The market in Eurobonds remains very volatile and yields have jumped here also. We think the CROATI 5.625 2018 offers a good entry point at current yield levels.
CEE Eurobonds: Market sentiment is improving and yields are stabilizing with a slight downward tendency. We see particular interest in shorter-dated Polish Eurobonds with good size two-way trading and strong bids for longer dated Czech Eurobonds.
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