MinFin activity is significantly lower year-on-year
Market situation: The negative sentiment associated with the spread of coronavirus worldwide has also affected domestic rates through the fall in European and US rates. The IRS curve declined significantly over the past week, particularly at the long end (by 22bps). To a lesser extent, government bond yields also fell, which again follows interest rate swaps.
Rates outlook: Markets currently expect a 13bps cut at the six-month horizon and up to two cuts at the one-year horizon. This, in our opinion, is a strong market mispricing, which creates an opportunity to pay rates. However, the current panic around coronavirus may not be over and the rate slump may be more pronounced. For the time being, we recommend a wait-and-see approach until the situation becomes clear. On the other hand, we still believe a further rise in inflation in the coming months will not allow the central bank to cut rates, as currently expected by the market.
Author: František Táborský