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2018/04/18 / Erste Group Research

2Q18 CEE bond market report

Inflation fails to grow substantially, CEE central banks do not need to hurry with tightening. Fiscal balances improved substantially in many countries, reducing gross financing needs. Mostly stable fundamentals and rating upgrade prospects also keep yield spreads compressed

Despite inflation being in positive territory for some quarters now, price increases fail to show a more notable increase, reducing the need of CEE central banks to tighten conditions substantially. We have cut our inflation forecast for the CEE region from 2.6% to 2.4% since the beginning of the year and see additional downward risks in our forecasts. The only central banks to tighten this year are the Czech and Romanian ones.

Fiscal balances also improved substantially last year: Croatia, the Czech Republic, Serbia and Slovenia all posted surpluses, while apart from Hungary and Romania, we saw improvements in fiscal shortfall numbers everywhere else as well. This does not only improve risk assessment, it also reduces gross financing needs, dampening pressures from primary government paper markets.

Issuance activity could remain rather muted this year, apart from Croatia and Hungary, where high redemptions and relatively low cash balances increase the need for issuance. As for the former, Eurobond issuance in 2Q18 could come, while in Hungary, this is less likely apart from the (already ongoing) strong issuance on the LCY market. While Eurobond issuance could be relatively scarce in CEE, switching the higher interest rate USD liabilities to EUR could continue in Slovenia and Hungary this year (Slovenia already carried out a switch in 1Q18).

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, 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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