Market Outlook

The flow of relatively good data from the US and worries about the fiscal trouble plaguing Greece resulted in further EUR weakening (-3% w/w). The stronger USD sent the Hungarian forint, Czech koruna and Polish zloty down about 1-2% w/w against the euro. The Romanian leu gained, as talks on forming a new coalition government advanced during the week. The new government will likely be formed around the Democrat Liberal Party and the Democratic Union of Hungarians in Romania, supported by some independent MPs and the representatives of ethnic minorities in the Parliament. It seems that Romania is well on track to receive the third tranche of IMF money in mid-February, if the budget is approved early next year. Hungary's debt agency announced that their baseline scenario for financing the government debt is not to draw any extra money from the IMF/EU, but rather finance the gap from borrowing on markets (local and international) and the IMF money they have put aside so far. Nevertheless, the net issuance of local currency government securities is planned to be very low (only about EUR 1.2bn), which should be supportive for bonds.