CE Treasury Yields To Compress

Three benchmark Central European treasury bonds are displaying potential for significant yield compression. We here assess the outlooks for the Hungarian, Czech and Polish 5-year treasuries. Four factors shape our view: emerging technical patterns, the recent firming of CE currencies, the European Central Bank's (ECB) 25bps cut in its main refinancing rate to 1.25% on April 2, and the width of the spread of bond yields over national policy rates. That said, we caution that in all three cases, the medium-term outlook remains weak, as a result of our expectation for the global recession to negatively impact all three countries' fiscal positions and to eventually renew risk aversion towards emerging market assets.

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