CEE FX: The bond channel matters more than the risk channel - ING

Research Team at ING, suggests that the global bond market rout, the sell-off in longer dated bonds and the pronounced bearish curve steepening have been weighing on bond flows driven PLN and HUF.

Key Quotes

“To the extent to which this continues this week, there is more upside to EUR/HUF and EUR/PLN as the bond channel currently matters more than the relatively supported general risk appetite. While the share of CZGB foreign ownership is not significantly different from HGB and POLGB, the different investment rationale behind these positions (positioning for the post- CNB floor exit CZK appreciation vs. the search for yield) makes CZK less vulnerable to the reflation driven bond outflows. In other words, the CZGB foreign holdings should be more sticky. However, given the large increase in long CZK speculative positions over the past months, the occasions of some limited and short lived EUR/CZK strength (such as the one on Friday) may become a less rare event in coming weeks.”