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(U1) Gains Considered Corrective


(U1) Needle Points North


Broad Sell-Off Seen


(U1) Evening Star Reversal?

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  • On Wednesday, the CNB raised its benchmark rate by 25bps (as expected) to 0.5% and announced the start of a tightening cycle in order to curb the inflationary pressures.
  • With the FRA 18Mx21M trading a 141bps above the Pribor 3M, the forward rate curve is currently pricing in another 5 to 6 rate hikes by the end of 2022.
  • However, while central banks have been preparing for a tightening cycle, the uncertainty over the economic recovery remains elevated (i.e. Delta variant, contraction of Chinese liquidity), which could be one of the main factors behind the recent fall in long term bond yields globally.
  • This chart shows that after peaking at 1.32% in December 2020, Czech 2Y10Y yield curve has been constantly flattening in the past 6 months, and currently trading at 75bps.
  • Can the CNB pause in 2022 if inflationary pressures remain elevated but the economic uncertainty continues to surge?

Source: Bloomberg/MNI