CEE Weekly Bond Outlook

8/3/2019 CEE Weekly Bond Outlook

1/12

Key upcoming events and data releases

Country Time Indicator Period Forecast Range Last

31 Jan

HU 09:00 Unemployment rate, % Dec 10.8 10.7/10.8/10.9 10.6HU 09:00 PPI, % yoy Dec 7.4 6.6/7.4/7.6 8.0

HR 11:00 Export of goods, EUR mn Dec 588.0 n.a. 648.0

HR 11:00 Import of goods, EUR mn Dec 1058.0 n.a. 1214.0

RU 08:00 real GDP, % yoy 2011 3.8 3.8/4.0/4.3 4.0

TR 09:00 Trade balance, USD bn Dec n.a. n.a. -7.5

02 Feb

PL 09:00 PMI Jan n.a. n.a. n.a.

CZ 09:30 PMI Jan n.a. n.a. n.a.

HU n.a. PMI Jan n.a. n.a. 48.50

CZ 13:00 Monetary Policy meeting, % Feb 0.75 n.a. 0.75

RO 09:00 PPI, % yoy Dec n.a. n.a. 7.9

RO 09:00 Retail sales, % yoy Dec n.a. n.a. 1.8

RO 13:00 Monetary Policy meeting, % Feb 5.50 5.50/5.50/5.75 5.75

RU 10:00 Refinance rate, % Feb 8.00 no change 8.0003 Feb

HR 11:00 Retail trade, % yoy Dec 0.4 n.a. 1.0

TR 09:00 Consumer prices, % yoy Jan 10.7 10.5/10.7/10.9 10.5

Highlights

Poland The Monetary Policy Council seems to be turning hawkish as do-

mestic inflation remains above 4.0% yoy. Even though rate hikes are unlikely,

some investors may be discouraged from buying Polish bonds especially

ones with shorter maturities. Thus, the 10-2 spread will probably narrow over

short to medium term.

Hungary The Monetary Council left the key interest rate unchanged at 7%on Tuesday. The market had been expecting a continuation of the rate hike

cycle (November +50bp; December +50bp), but markets had calmed quite

a bit recently and therefore there was some uncertainty about the outcome

of the rate-setting meeting. According to Governor Simor, the decision was

a close call.

Czech Republic Next weeks CNB policy meeting will be the main domes-

tic event. It is almost certain that the CNB will leave the key interest rate un-

changed at the historically low level of 0.75%. Nevertheless, the comments

and the new forecast will be important. It is likely that the GDP growth fore-

cast will be lowered, while CZK is weaker and current inflation is higher.

Romania The NBR cut the monetary policy rate by a total of 50bp at the

last two monetary policy meetings (in November and January). We think the

current context will help the central bank to cut the key rate by another 25bp

at next weeks meeting (on 2 February), although we did not previously envis-

age such a move in our baseline scenario.

Croatia On 26 January Croatia's central bank lifted the mandatory reserve

requirement for commercial banks by one percentage point to 15% to halt

Forecast

current* Mar-12 Jun-12 Sep-12

Poland

PLN 4.24 4.45 4.30 4.15

1m-rate 4.6 4.6 4.3 4.1

5y bond 5.0 5.0 4.9 4.5

10y bond 5.6 5.8 5.6 5.3Hungary

HUF 294.0 305 300 295

1m-rate 7.2 7.1 7.1 7.1

5y bond 8.6 8.4 7.8 7.6

10y bond 8.6 8.6 8.0 7.8Czech Rep.

CZK 25.2 25.2 24.7 24.4

1m-rate 0.6 0.5 0.5 0.5

5y bond 2.1 2.4 2.1 2.2

10y bond 3.1 3.8 3.4 3.4Russia

RUB** 30.4 32.6 32.6 31.9

1m-rate 6.2 6.5 6.4 6.5

5y bond 7.9 8.4 8.3 8.5

10y bond 8.4 9.1 8.9 9.1USD 1.31 1.30 1.32 1.35

* Prices as of 27 January 2012 08:34 a.m. CET; Cur-rencies per 1 EUR, **RUB per 1 USDSource: Thomson Reuters. Raiffeisen RESEARCH

RecommendationsNeutral: PLN T-bonds, HUF T-bonds, RON T-bonds, CZK T-bonds, TRY T-bonds

Issue 4/2012 27 January 2012

CEE WeeklyCEE WeeklyBond Markets OutlookBond Markets Outlook

RON

TRY

CZK

RUB

PLN

USD

HUF

-4 -2 0 2 4

* in %, week-on-weekSource: Thomson Reuters

LCY changes vs. EUR*

10Y-HUF

10Y-CZK

10Y-TRY

10Y-PLN

10Y-RUB

5Y-RON

10Y-BUND

-60 -40 -20 0

* in bp, week-on-weekSource: Thomson Reuters

Yield changes*


2/12

Weekly outlook

2 27 January 2012

the depreciation pressures. We can expect the EUR/HRK to stabilise and in-

terest rates on the money market and probably T-bill yields at the next auc-

tion to rise.

Russia This week, in its comments the central bank cited no plans to changeinterest rates at the upcoming meeting. Nevertheless, if rouble liquidity con-

ditions to not improve the bank might be compelled to cut rates later in

February. Increasing demand for OFZ government paper went hand in hand

with strong rouble appreciation this week. However, we believe the rouble

rally will approach its limit at 34.50 versus the dual currency basket after

which we expect consolidation in the rouble market and a marginal weaken-

ing of the rouble in response.

Turkey After a year in which investors pulled out of Turkish assets, they

now continue to pile back into the countrys bond market. The main reason

is the increasing global risk appetite, while still elevated yield levels and the

improving track record of the central bank (TCMB) in defending the lira arealso supportive. It is nevertheless necessary to highlight that the current rally

is based on a presumably temporary revival in global risk taking.


3/12

Weekly outlook

327 January 2012

Local currency bonds market overview

CEE local currency bond market snapshot

26/01/2012 Maturity Coupon % Ask Price YTM % Spread to Bunds; bp MDur.

Poland

PLN 2y Gov. Bond 25/01/2014 0.00 91.36 4.65 448 2.0

PLN 5y Gov. Bond 25/10/2016 4.75 98.77 5.04 422 4.3

PLN 10y Gov. Bond 25/10/2021 5.75 100.98 5.61 367 7.6

PLN 20y Gov. Bond 25/04/2029 5.75 99.10 5.83 322 10.9

Hungary

HUF 3y Gov. Bond 22/08/2014 6.75 96.18 8.44 803 2.4

HUF 5y Gov. Bond 24/11/2017 6.75 91.42 8.68 786 4.9

HUF 10y Gov. Bond 24/06/2022 7.00 88.35 8.74 680 7.2

HUF 15y Gov. Bond 22/10/2028 6.75 83.69 8.62 618 9.7

Czech Republic

CZK 2y Gov. Bond 16/09/2013 2.80 102.50 1.24 106 1.6

CZK 5y Gov. Bond 26/01/2016 6.95 118.23 2.13 131 3.7

CZK 10y Gov. Bond 29/09/2021 3.85 105.97 3.12 118 8.2

CZK 15y Gov. Bond 25/05/2024 5.70 123.98 3.30 86 9.3

Croatia

HRK 5y Gov. Bond 15/12/2015 5.25 95.70 6.52 570 3.6

HRK 10y Gov. Bond 05/03/2020 6.75 96.00 7.41 547 6.1

RomaniaRON 3y Gov. Bond 25/10/2014 6.25 98.80 6.73 632 2.6

RON 5y Gov. Bond 30/04/2016 6.00 96.36 7.01 619 3.7

Russia

RUB 2y Gov. Bond 16/10/2013 6.55 100.75 6.23 605 1.7

RUB 5y Gov. Bond 03/08/2016 6.90 97.50 7.71 689 3.9

RUB 10y Gov. Bond 24/11/2021 8.00 92.25 8.19 625 7.1

RUB 30y Gov. Bond 06/02/2036 6.90 89.00 8.10 556 10.8

Turkey

TRY 2y Gov. Bond 04/12/2013 10.00 100.99 9.39 921 1.8

TRY 5y Gov. Bond 27/01/2016 9.00 98.35 9.50 868 3.2

TRY 10y Gov. Bond 12/01/2022 9.50 100.70 9.39 745 6.8

Prices as of 26 January 2012,5:30 p.m. CETSource: Thomson Thomson Reuters, Raiffeisen RESEARCH


4/12

Weekly outlook

4 27 January 2012

Poland: Risk appetite seems improving

4.3

4.5

4.8

5.05.3

5.5

5.8

6.0

0 1 2 3 4 5 6 7 8 9 10

actual yields yield curve

swap curve last week

PLN yield curve

Source: Thomson Reuters, Raiffeisen RESEARCH

Bond market focus

2y 5y 10y 20y

Actual 4.65 5.04 5.61 5.83

Change(% wow)

-0.07 -0.07 -0.03 0.06

ForecastMar-12

4.70 5.00 5.80 5.75

Spread tobunds 447.6 422.2 367.1 322.3

Change(% wow)

-1.3 -9.6 -2.7 -6.5

Prices as of 26 January 2012 ,5:30 p.m. CET

Money market focus

MM rates 1m 3m 6m 12m

Actual 4.55 4.78 4.81 4.81

Change(% wow)

0.00 0.00 0.01 0.01

ForecastMar-12

4.55 4.60 4.48 4.45

Forwardrates

3x6 6x9 9x12

4.87 4.78 4.72

Change(% wow)

0.02 0.01 0.01


Exchange rate focus

26-Jan Mar-12 Jun-12 Sep-12

EUR/PLN 4.23 4.45 4.30 4.15

Change(% wow)

2.3%

USD/PLN 3.21 3.42 3.26 3.07

Change(% wow) 4.2%


Market comment

The Ministry of Finance was successful in issuing bonds in January, profiting from

the improvement in market sentiment and the supportive commentary on Polands

budget from the European Commission. All in all, by 19 January the Ministry had

sold bonds worth about PLN 25 bn (including one issuance of Eurobonds and one

switch tender), covering about 14.5% of 2012 gross borrowing needs and almost

equal to the minimum value of issuance scheduled for Q1 2012. Despite the large

supply, the yield on the 5-year benchmark bond dropped from 5.38% at the be-

ginning of January to around 5.14% at the end of month.

Market outlook

Demand for Polish bonds is likely to prevail over supply at least in short term, as

global risk appetite seems to be improving and large investors may be afraid of

lower supply in the primary market later in the year. Moreover, domestic inflationis expected to fall in H2 2012 and that should be particularly supportive for long-

term bonds. On the other hand, the Monetary Policy Council seems to be turning

hawkish as domestic inflation remains above 4.0% yoy. Even though rate hikes

are unlikely, some investors may be discouraged from buying Polish bonds es-

pecially ones with shorter maturities. Thus, the 10-2 spread will probably narrow

over short to medium term. The entire curve may also move down somewhat, but

demand remains fragile and a possible return of risk aversion could easily bring

about rising yields.

Analyst: Pawe Radwaski(+48 22 585 20 00)(+48 22 585 20 00)

(P)review of key economic figures/events

13 Jan-12 CPI, % yoy Dec 4.6 (4.8) Downtick in inflation as we had projected

20 Jan-12 Core Inflation, % yoy Dec 3.0 (3.0) Stabilisation of core inflation

27 Jan-12 Retail sales, % yoy Dec 11 (Nov 12.6) Some moderation in retail sales expected

EUR/PLN


Last: 4.2330 Sell 4.20

Target: 4.15 - 4.07 09:15, 27.01.2012 CET4.15 - 4.07 might still get hit, bearish confirmationwd be 4.20. Stop 4.3190.


5/12

Weekly outlook

527 January 2012

Hungary: Key interest rate unchanged


24 Jan-12 Monetary Council meeting, % Jan 7.0 (Dec 7.0)

31 Jan-12 Unemployment rate, % Dec 10.8 (Nov 10.6)

31 Jan-12 PPI, % yoy Dec 7.4 (Nov 8.0)

6.06.57.07.58.08.5

9.09.5

10.010.511.0

0 1 2 3 4 5 6 7 8 9 10


last week swap curve

HUF yield curve


Market comment

The Monetary Council left the key interest rate unchanged at 7% on Tuesday.

The market had been expecting a continuation of the rate hike cycle (Novem-

ber +50bp; December +50bp), but markets had calmed quite a bit recently and

therefore there was some uncertainty about the outcome of the rate-setting meet-ing. According to Governor Simor, the decision was a close call. Most likely, the

four external members voted for no change leaving the Governor and his depu-

ties in the minority. This voting behaviour is certainly a function of the perceived

short-term outlook for Hungary. The optimist view is that Hungary will smoothly

and swiftly agree with the IMF/EU, and in this case, there is rightly no need for

any more rate hikes. However, if one is less upbeat and is concerned about the

agreement, then the case for another 50bp rate hike is still given. Markets mirror

this as short-dated HGB yields are still hovering close to 7.5%, although they de-

creased a lot. HUF also reached a three-month high against EUR, appreciating

almost 10% from early January.

Market outlook

One other notable event was Mr. Orbns trip to Brussels. After he met with EC

president van Rompuy, the PM announced his willingness to sign the accord on

fiscal cooperation. We see this as one of the most positive bits of news lately,

which promises a more prudent economic policy over the mid-term. Moreover,

we are of the opinion that negotiations should start soon as the Hungarian gov-

ernment has signalled its flexibility strongly enough. Nevertheless, we expect fur-

ther market hiccups in the coming months before (and maybe even after) the IMF

loan agreement is eventually signed as the road will probably be bumpy. Also,

the external environment is not always going to be so favourable. We keep our

EUR/HUF forecast unchanged (March 305; June 300), and expect only littleroom for HGB yields to sink more.

Analyst: Adam Keszeg (+36 1 484 4313)Adam Keszeg (+36 1 484 4313)Bond market focus

3y 5y 10y 15y

Actual 8.44 8.68 8.74 8.62

Change(% wow)

-0.61 -0.38 -0.34 -0.37

ForecastMar-12

8.3 8.4 8.6 8.6

Spread tobunds 803.0 785.9 679.9 618.2

Change(% wow)

-63.6 -40.7 -46.2 -47.9


Money market focus


Actual 7.24 7.51 7.74 8.03

Change(% wow)

-0.02 -0.13 -0.19 -0.25

ForecastMar-12

7.1 7.1 7.3 7.7

Forwardrates

1x2 3x6 6x9 9x12

7.78 8.06 8.15 8.19

Change(% wow)

-0.17 -0.26 -0.25 -0.36


Exchange rate focus


EUR/HUF 294.72 305.0 300.0 295.0

Change(% wow)

2.4%

USD/HUF 223.90 234.6 227.3 218.5

Change(% wow) 4.4%


EUR/HUF


Last : 295.59Sell 293 Target: 285

09:13, 27.01.2012 CETThe upward-trend at 264 holds firm, but we cannotrule out 293 -> 285, buy 300 -> 310.


6/12

Weekly outlook

6 27 January 2012


09 Jan-12 CPI, % yoy Dec 2.4 (Nov 2.5) Effect of VAT hike already priced in

16 Jan-12 PPI, % yoy Dec 4.6 (Nov 5.6) Disinflation in industrial prices to continue despite weak CZK

02 Feb-12 Monetary Policy meeting, % Feb 0.75 (Dec 0.75) No change widely expected

Czech Republic: Central bankers favour rate stability

0.00.51.01.52.02.53.0

3.54.04.55.0

0 1 2 3 4 5 6 7 8 9 10



CZK yield curve


EUR/CZK


Last: 25.162Sell 24.95 Target: 24.80 - 24.75

09:06 , 27.01.2012 CET25 might prove firm again and a rebound to 25.70be possible, but bearish confirmation at 24.95 hardlywon't get triggered.

Bond market focus

2y 5y 10y 15y

Actual 1.24 2.13 3.12 3.30

Change(% wow)

-0.23 -0.11 -0.23 -0.23

ForecastMar-12

1.7 2.4 3.8 4.2

Spread tobunds 106.0 131.3 118.3 86.0

Change(% wow)

-21.0 -13.1 -35.5 -34.4


Money market focus


Actual 0.96 1.18 1.49 1.74

Change(% wow)

0.00 0.01 -0.01 0.00

ForecastMar-12

0.5 0.6 0.8 1.2

Forwardrates

1x2 3x6 6x9 9x12

1.17 1.81 1.94 2.03

Change(% wow)

0.00 -0.03 0.02 0.00


Exchange rate focus


EUR/CZK 25.16 25.2 24.7 24.4

Change(% wow)

0.4%

USD/CZK 19.12 19.4 18.7 18.1

Change(% wow) 2.3%


Market comment

Ahead of the approaching CNB monetary policy meeting, more Czech policy-

makers expressed their positions. P. Rezabek and K. Janacek agreed that there

is no need to tighten monetary policy anytime soon. Curiously, Eva Zamrazilovasaid that unless she persuades her colleges (to vote for a hike) she would vote

for no change in the key rate on February 2. If CPI inflation in January is above

consensus and the CNB forecast, she said she would not hesitate to vote for a

rate hike. Zamrazilova also mentioned that it is not sure that the higher inflation

(2.4%) at the end of 2011 is not a result of the preparation for the VAT rate hike

from the beginning of 2012. We would agree that higher commodity prices and

a weaker CZK are pushing inflation slightly higher than expected. Nevertheless,

we still think that the VAT hike is now the key inflationary factor and without it in-

flation would be below the CNB 2% inflation target.

Market outlook

Next weeks CNB policy meeting will be the main domestic event. It is almost cer-

tain that the CNB will leave the key interest rate unchanged at the historically low

level of 0.75%. Nevertheless, the comments and the new forecast will be impor-

tant. It is likely that the GDP growth forecast will be lowered, while CZK is weaker

and current inflation is higher. Taking into account the recent development of

macro variables abroad as well as in the Czech Republic and given the improve-

ment in global market sentiment, our forecast for 2012 might seem pessimistic

now but the situation is still very tense in the Eurozone. Consequently, our base-

line scenario still calls for 1.2% GDP contraction in 2012 and a policy rate cut

to 0.50%. We stick to our HOLD recommendation for Czech government bonds.

Analyst: Michal Brozka (+420 234 40 1489)


7/12

Weekly outlook

727 January 2012


31 Jan-12 Export of goods, EUR mn Dec 588 (Nov 648)

31 Jan-12 Import of goods, EUR mn Dec 1058 (Nov 1214)

03 Feb-12 Retail trade, % yoy Dec 0.4 (Nov 1.0)

Croatia: Croatias yes to the EU

2.02.53.03.54.04.55.05.5

6.06.57.07.58.0

0 1 2 3 4 5 6 7 8 9 10



HRK yield curve


Market comment

Croatian voters backed EU membership in the referendum held on Sunday. The

turnout was relatively low at about 44%, but 66% of the voters casted a yes

vote while 33% were against it. In the period until 1 July 2013 all EU memberstates are to ratify the Accession Treaty. It is clear that only prudent fiscal policies,

structural reforms and a competitive economy could bring benefit from the com-

mon European market. Finally, the government proposed measures and guide-

lines for the 2012 budget draft. They anticipate the tax reform, spending cuts and

a budget deficit below 3% of GDP this year already. Tax reform includes meas-

ures such as a VAT increase to 25%, introduction of lower VAT of 10% for cer-

tain categories such as oils and fats, baby foods and water supply. Furthermore,

the level of non-taxable income is supposed to increase while the contribution for

health insurance will be reduced, thus lowering the gross cost of labour. The ex-

penditure side of budget is to be cut by HRK 4.6 bn (reduction of the wage bill

by a more rational organisation, cutback on subsidies, and rationalisation of the

health care system). We consider these plans to be too optimistic, as realisationof planned revenues will be faced with great risks, primarily a slide into a dou-

ble-dip recession. The announced fiscal consolidation on the expenditure side is

not supported by clear measures and the estimated GDP growth of 0.8% yoy in

2012 is based on investments of public enterprises.

Market outlook

Money market rates remained at a low level, EUK/HRK is slowly but surely go-

ing up, and even exceeded 7.58. On 26 January Croatia's central bank lifted the

mandatory reserve requirement for commercial banks by one percentage point

to 15% to halt the depreciation pressures. We can expect the EUR/HRK to stabi-

lise and interest rates on the money market and probably T-bill yields at the nextauction to rise.

Analysts: Ivana Juric (+385 1 61 74 349)

Zrinka Zivkovic-Matijevic (+385 1 61-74338)

Bond market focus

2y 5y 10y

Actual 4.64 6.94 7.42

Change(% wow)

0.01 0.01 0.00

Forecast Mar-12 6.30 7.65 7.75

Spread to bunds 446.6 611.8 547.4

Change(% wow)

2.6 0.2 -12.0


Money market focus


Actual 1.59 4.69 5.25 5.65

Change(% wow)

0.07 0.11 -0.01 0.00

ForecastMar-12

4.6 4.9 5.6 6.0

Forwardrates

3x6 6x9 9x12

5.87 5.82 6.14

Change(% wow)

-0.14 0.02 0.00


Exchange rate focus


EUR/HRK 7.57 7.50 7.48 7.50

Change(% wow)

0.0%

USD/HRK 5.19 5.77 5.67 5.56

Change(% wow) 0.0%


EUR/HRK


Last: 7.5580Buy 7.60 Target 7.69

09:08 27.01.2012 CETJust the FRL has gotten hit and thus although it keepslooking bullish it might trigger 7.52 -> 7.45.


8/12

Weekly outlook

8 27 January 2012


27 Jan-12 Economic Sentiment Index Jan n.a. (Dec 90.8)

02 Feb-12 Retail sales, % yoy Dec n.a. (Nov 1.8)

02 Feb-12 Monetary Policy meeting, % Feb 5.50 (Jan 5.75)

Romania: A new key rate cut on the cards?

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

0 1 2 3 4 5 6 7 8 9 10



RON yield curve

Source: Thomson Reuters, Bloomberg, Raiffeisen RESEARCH

Market comment

A monetary policy meeting is due on 2 February. The NBR cut the monetary pol-

icy rate by a total of 50bp at the last two monetary policy meetings (in Novem-

ber and January). We think the current context will help the central bank to cutthe key rate by another 25bp at next weeks meeting, although we did not pre-

viously envisage such a move in our baseline scenario. Underlying inflationary

pressures remained low, while administrative prices will most likely remain un-

changed in Q1. This suggests that monthly inflation rates will remain low in Q1.

Thanks to a favourable statistical base effect (high monthly inflation rates in Q1

2011, versus low monthly inflation rates in Q1 2012), the annual inflation rate

has a strong chance to fall to below 2% yoy in March-April from 3.1% yoy in De-

cember. At the same time, our projections and market expectations are that infla-

tion will remain below 4% yoy in the following 12 months. Expectations that cen-

tral bank will continue to cut the key interest rate have increased and market con-

sensus for next weeks meeting will probably be a 25bp cut. The mood on the

external markets is not very bad at the moment. So, the context seems favoura-ble for a new cut in the key rate and we think the central bank will not miss the

opportunity. While we previously expected the key rate to bottom out at 5.5%,

chances for a lower level have increased recently. Shortly following the monetary

policy meeting, the NBR will release its new inflation projection.

Market outlook

Our outlook on bond prices in H1 2012 proved to be a bit pessimistic as yields

declined faster than we expected. Yields are currently trading below our end-

March targets for all tenors. Moreover, the bond market has probably not fully

taken into account a cut in the key rate at the next monetary policy meeting. So,

if the central bank does cut the key rate again next week, we might see anothermarginal decrease in yields.

Analyst: Nicolae Covrig (+40 21 306 1262)

Bond market focus*

2y 3y 5y 10y

Actual 6.40 6.73 7.01 7.01

Change(% wow)

-0.10 0.01 0.01 0.01

ForecastMar-12

6.50 6.90 7.10 7.20

Spread tobunds

622.3 632.0 618.9 506.9

Change(% wow)

-8.7 -1.5 1.0 -11.2

* forecast under revisionPrices as of 26 January 2012 ,5:30 p.m. CET

Money market focus*


Actual 4.88 5.14 5.66 5.86

Change(% wow)

-0.17 -0.07 -0.08 -0.04

ForecastMar-12

5.0 5.3 5.3 6.1

Forwardrates

3x6 6x9 9x12

6.24 5.92 6.04

Change(% wow)

-0.09 -0.08 0.08

* forecast under revisionPrices as of 26 January 2012 ,5:30 p.m. CET

Exchange rate focus


EUR/RON 4.34 4.40 4.35 4.30

Change(% wow)

0.1%

USD/RON 3.30 3.38 3.30 3.19

Change(% wow)

2.0%


EUR/RON


Last:4.3295Position: neutral

09:17 , 27.01.2012 CETIt struggles to perform a breakout from the long-termcongestion area at 4.3840 -> 4.45. Setbacks to4.2570 are likely.


9/12

Weekly outlook

927 January 2012

Turkey: Enter TRY market after the expected backlash

9.50

9.70

9.90

10.10

10.30

10.50

10.70

10.90

11.10

0 2 4 6 8 10

Maturity (years)actual yields

yields a week agoyield curve a week agoactual yield curve

TRY yield curve


Money market focus


Actual 11.15 11.19 11.20 11.23

Change(% wow)

0.00 -0.01 0.00 -0.02

ForecastMar-12

11.10 11.20 11.20 n.a.

Implied for-ward rates

1x2 3x6 6x9 9x12

11.15 10.90 10.71 10.34

Change(% wow)

0.04 0.01 -0.04 -0.04

Prices as of 27 January 2012 , 08:27 a.m. CET

Bond market focus

3m 1y 2y 5y

Actual 10.17 9.67 9.62 9.84

Change(% wow)

-0.64 -0.88 -1.00 -0.49

ForecastMar-12

n.a. 11.0 11.0 10.5

Prices as of 27 January 2012, 8:27 a.m. CET

Market comment

After a year in which investors pulled out of Turkish assets, they now continue to

pile back into the countrys bond market. The main reason is the increasing global

risk appetite, while still elevated yield levels and the improving track record ofthe central bank (TCMB) in defending the lira are also supportive. The lira was

the worst EM-performer last year, hitting a record low at USD/TRY 1.92 on De-

cember 28, whereas the currency recovered to below 1.80 last Thursday. At the

same time, the 2y LCY benchmark government bond yield which rose more than

400bp last year continued to decline in tandem with other maturities and even

dove below the 10% level. The current rally already started in early January and

accelerated yesterday, after the Fed indicated that interest rates would stay at ultra

low levels at least until mid-2014 and another round of quantitative easing could

not be ruled out. Although the latter which is generally supportive for EM assets

due to the provision of abundant and cheap liquidity underlines our earlier call

that QE3 will most likely occur in Q2 2012, it is nevertheless necessary to high-

light that the current rally is based on a presumably temporary revival in globalrisk appetite combined with QE3 speculations.

Market outlook

Against this backdrop, a sudden backlash is on the cards, as according to our

baseline scenario the EMU crisis should intensify financial market jitters in the

near term. This risk is exacerbated by the weak secondary market volumes we

have observed in recent weeks. One consequence of the thin liquidity is that

banks are less willing to underwrite risk in times of accelerated deleveraging with

the consequence of preferring to trade liquid DM benchmarks. Nevertheless, the

Turkish Treasury jumped on the bandwagon of the current global risk-on mode

and was able to sell more of its LCY bonds at this weeks auctions than planned.

Since next weeks economic data should not bring any surprises, the likely con-

tinuation of global yield-hunting appetite should keep lira assets around current

levels in the upcoming week.

Analyst: Stephan Imre (+43 1 71707 6757)


24 Jan-12 Benchmark Repo Rate Jan 5.75 (Dec 5.75) No changes in rates, as expected, but no daily FX auctions any more

31 Jan-12 Trade balance, USD bn Dec n.a. (Nov -7.5) Simil iar to this week's CPU details, exports to fur ther narrow the gap

03 Feb-12 Consumer prices, % yoy Jan 10.7 (Dec 10.5) Base effect to keep yearly CPI inflation in double digits until mid-2012

Exchange rate focus


EUR/TYR 2.34 2.47 2.51 2.50

Change(% wow)

-1.0%

USD/TYR 1.79 1.90 1.90 1.85

Change(% wow)

-1.9%

Prices as of 27 January 2012 ,8:27 a.m. CET

EUR/TRY


Last: 2.34 Sell 2.32Target: 2.26 09:23, 27.01.2012 CET

Still falling towards the RSL at 2.6, but might also reach2.20. Stop 2.40 -> 2.45.


10/12

Weekly outlook

10 27 January 2012


31 Jan-12 real GDP, % yoy 2011 3.8 (2010 4.0)

02 Feb-12 Refinance rate, % Feb 8.0 (Jan 8.0)

Russia: No rate action in January

6.0

7.0

8.0

9.0

1 2 3 4 5 6 7 8Duration (years)

actual yieldsyield curve a week agoyield curve

RUB yield curve


Market comment

A fresh batch of macro statistic confirmed our expectations. Russias retail sales

jumped 9.5% yoy in December, while for the whole 2011 retail sales added

7.2% yoy. Despite a moderate slowdown, household consumption remains themain driver of economic activity in Russia, generating constantly higher domes-

tic demand. Ironically, wage growth was disappointing at only 0.8% yoy in

real terms whereas a 6.3% yoy increase in December alone could be largely

attributed to the year-end payouts and bonuses. This situation leaves us con-

cerned about the speed of household consumption as lower income growth does

not warrant increasing personal spending. However, social payouts planned for

2012 may potentially compensate for lower wage growth. Finally, industrial out-

put recorded a 4.7% yoy increase in 2011 compared to 8.7% in 2010. The

output result was in line with the market estimate and underpinned by weaker

demand in the industrial sector, while the services sector managed to maintain

strong dynamics. Overall, the outgoing year was marked by some deterioration

in economic activity, especially in real sector. The Russian PMI is still above 50mark separating recovery from stagnation, but was weaker at 51.7 in December.

Overall, our outlook for 2012 remains unchanged with GDP growth expected at

3.2% yoy and more moderate weakening of economic activity.

Market outlook

This week, in its comments the central bank cited no plans to change interest rates

at the upcoming meeting. Nevertheless, if rouble liquidity conditions to not im-

prove the bank might be compelled to cut rates later in February. Increasing de-

mand for OFZ government paper went hand in hand with strong rouble appre-

ciation this week. However, we believe the rouble rally will approach its limit at34.50 versus the dual currency basket after which we expect consolidation in the

rouble market and a marginal weakening of the rouble in response.

Analyst: Gintaras Shlizhyus (+43 1 71707 1343)

Bond market focus

1y 2y 5y 15y

Actual 6.40 7.04 7.93 8.79

Change(% wow)

0.06 -0.07 -0.11 -0.06

ForecastMar-12

6.45 7.40 8.40 n.a.


Money market focus


Actual 6.48 7.30 7.62 8.61

Change(% wow)

0.26 0.20 0.14 0.06

ForecastMar-12

6.45 6.90 7.05 n.a.

Forwardrates

1x2 3x6 6x9 9x12

7.51 8.03 n.a. n.a.

Change(% wow)

0.15 -0.02 n.a. n.a.


Exchange rate focus


EUR/RUB 39.82 42.38 43.04 43.04

Change(% wow)

1.8%

USD/RUB 30.40 32.60 32.60 31.88

Change(% wow)

3.0%


EUR/RUB


Last: 30.81 SellTarget: 29.60 - 28.80 09:20,

27.01.2012 CETThe downward trend-channel's falling support is tobe found at 28.80. Sd 29.70 prove firm one moretime, it cd rebound to 31.50.


11/12

Weekly outlook

1127 January 2012

Summary: Ratings & macro data

Country ratings: CEE, SEE, CIS

S&P Moody's Fitch

LCY FCY Outlook LCY FCY Outlook LCY FCY Outlook

CEE

Poland A A- stable A2 A2 stable A A- stable

Czech AA AA- stable A1 A1 stable AA- A+ stable

Hungary BB+ BB+ negative Ba1 Ba1 negative BBB- BB+ negative

Slovakia * A+ A+ negative A1 A1 stable A+ A+ stable

Slovenia * AA- AA- negative A1 A1 negative AA- AA- negative

SEE

Bulgaria BBB BBB stable Baa2 Baa2 stable BBB BBB- stable

Croatia BBB- BBB- negative Baa3 Baa3 stable BBB BBB- negative

Romania BB+ BB+ stable Baa3 Baa3 stable BBB BBB- stable

Serbia BB BB stable nr nr - BB- BB- stable

CIS

Belarus B- B- negative B3 B3 negative nr nr -

Kazakhstan BBB+ BBB+ stable Baa2 Baa2 stable BBB+ BBB positive

Russia BBB+ BBB stable Baa1 Baa1 stable BBB BBB stable

Ukraine B+ B+ stable B2 B2 negative B B stable

Turkey BBB- BB positive Ba2 Ba2 positive BB+ BB+ stable

*Eurozone (Euro currency) membersSource: rating agencies websites

Main macro data & forecasts*

Country Year GDP,% avg.

yoy

CPI,% avg.

yoy

Unem-ployment,

%

Nominalwages,

EUR

Fiscalbalance,

% GDP

Publicdebt, %

GDP

Export**,% GDP

C/A, %GDP

Ext. debt,% GDP

FXR*** %ext. debt

Importcover,

months

Poland 2010 3.8 2.6 12.1 808 -7.9 53.4 34.5 -4.1 66.4 29.7 6.5

2011e 3.9 4.3 12.4 822 -5.4 55.9 36.2 -3.9 70.1 30.0 6.5

2012f 2.2 2.5 12.4 809 -5.0 56.5 37.5 -4.0 76.0 29.8 6.8

Hungary 2010 1.3 4.9 11.2 735 -4.2 81.3 73.5 1.1 139.4 24.9 6.1

2011e 1.5 3.9 11.1 759 0.0 74.6 79.7 0.9 133.9 25.8 5.7

2012f -2.0 5.0 11.7 745 -3.5 77.4 83.5 1.3 139.1 27.0 6.1

Czech Rep. 2010 2.7 1.5 9.0 947 -4.8 37.6 63.9 -3.1 47.8 44.8 4.1

2011e 1.9 1.9 8.6 995 -4.3 40.3 68.8 -1.8 45.9 41.2 3.5

2012f -1.2 2.6 9.0 1021 -4.9 44.8 67.6 -2.9 47.3 41.4 3.6

Romania 2010 -1.9 6.1 7.6 452 -6.9 31.0 30.6 -4.1 75.8 35.1 9.0

2011e 2.5 5.8 5.3 470 -4.6 32.9 33.9 -3.8 74.1 32.7 7.6

2012f 0.5 3.5 5.0 481 -3.0 34.1 35.9 -4.0 75.7 30.4 6.9

Croatia 2010 -1.2 1.1 17.4 1054 -4.9 41.2 19.8 -1.1 101.3 22.9 8.5

2011e 0.5 2.3 18.0 1048 -5.5 45.0 20.3 -0.5 102.6 24.5 9.4

2012f -1.0 2.0 18.5 1062 -4.5 52.4 20.5 0.0 104.1 24.8 9.9

Russia 2010 4.0 6.9 7.2 538 -4.1 9.4 26.4 6.1 32.8 92.8 22.6

2011e 3.8 8.6 6.7 600 0.5 10.2 29.4 4.8 33.3 94.5 19.6

2012f 3.2 6.2 7.0 625 -1.5 12.0 27.5 2.3 32.8 84.7 17.2

Turkey 2010 8.9 8.6 11.7 366 -3.7 45.9 16.5 -6.6 39.1 27.9 5.4

2011e 8.0 6.4 10.0 342 -1.5 41.2 18.4 -9.9 45.3 25.5 4.6

2012f 1.5 9.5 10.5 340 -3.0 40.6 21.3 -8.3 45.1 20.3 3.3

* only for countries included in CEE bond market weekly (under revision), ** Export of Goods only, *** FXR - Foreign exchange reservesSource: Thomson Financial Datastream, National Statistics


12/12

Weekly outlook

12 27 January 2012

Raiffeisen Bank International AG

Raiffeisen Bank International AG, ViennaGlobal MarketsHead: Nicolaus Hagleitner Tel: +43 1 71707 1467Head of International Sales: Luca Scalzini Tel: +43 1 71707 3981

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Minsk: Priorbank JSC BelarusTreasury: Andrey Filazafivich Tel: +375 17 289 9312

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Raiffeisen Bank International London BranchSales: Lorna Robertson Tel: +44 20 7933 8113

Raiffeisen Centrobank AG, Vienna

Equity Capital MarketsHead: Wilhelm Celeda Tel: +43 1 515 20 402Sales: Klaus della Torre Tel: +43 1 515 20 472

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Editor:Raiffeisen RESEARCH GmbHA-1030 Vienna, Am Stadtpark 9Tel.: +43 1 717 07-1521

This report was completed on 27 January 2012.

Head of Raiffeisen RESEARCH:Peter Brezinschek (1517)

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