Research (Conseq)
Bonds  |  August 30, 2012 10:42:22

Bond funds showed excellent growth, now slow down a bit

Bond funds are so far this year due to favorable market developments very successful. In some cases, the evaluation yielded 15 percent or more, which is normally the result of a higher than average and the stock market. Excellent season have come as the Czech government bonds, for example, and their Hungarian, Polish and Turkish counterparts.

Strong price growth in recent months had pushed the required yield to maturity of Czech government bonds at a record low level - two-year bond at 0.7%, then the ten-year level of 2.2%.Likewise, at a record low level of 0.5% is also a key policy rate CNB (two-week repo rate) and on the market at present there is a strong belief that the CNB Bank Board in the near future to further lower, potentially down to zero. If these expectations are fulfilled, bond prices, especially shorter maturities, would gain in the short term additional support. In the long term (the end of 2012, the course of 2013), however, the current yield level of Czech government bonds perceived as significantly below average and we expect a gradual growth in the first stage, especially in the segment of longer maturity bonds.One of the determining factors should be similar developments in the world's major bond markets, led by the German and U.S. government bonds under the influence of higher global economic growth in the second half. An important factor will be the fulfillment of domestic medium-term fiscal consolidation plan, the first step, then the result of this year's state budget. Investors believe in the government's plan to achieve the deficit of public finances of 3.2% of GDP, but in light of the worse economic developments in the first half of the year can be quite tough.

Significantly better performance than the state should reach the selected corporate bonds. Credit margin corporate and financial bond issuers continue to maintain the historically above average levels, which, in our opinion, not a solid business fundamentals. The current yield corporate bonds are also attractive in light of record low yield levels of the state benchmarks perceived as risk-free (U.S., core EMU) and should fall in the coming months. Non-government bonds would be attractive to achieve high appreciation of their national counterparts.



Ondřej Matuška

Portfolio Manager

Conseq Investment Management, Inc.


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