By: The Quinnipiac University Economics Research Team, Niamh Savage
Source: Eurostat and own calculations. Daily EMU convergence criterion bond yields (i.e., central government 10-year bond yields)
Throughout this time period, there was a decline in the interest rates of all CEE currencies. The greatest variation, in percentage terms, was in Slovakia, and they had the largest decline in interest rates (pink line). This is consistent with the prior week’s finding, so this is the country to watch. Their returns on government bonds decreased; therefore, their demand for the country’s bonds continues to grow. The question of whether this is a flight to safety or reflects positive developments for the government. On the other hand, the Romanian Leu (yellow line) showed the least variation in percentage terms relative to other regional currencies; it did not continue to show a strengthening of their currency to the Euro, but it declined by the least.
Source: Eurostat and own calculations. Daily EMU convergence criterion bond yields (i.e., central government 10-year bond yields). The center line is a rolling three-month average. The upper and lower boundaries are the average plus and average minus one standard deviation, respectively, for the same three-month period.
Throughout this time period, all of the returns showed a decline, suggesting an increase in demand for their bonds and increase in prices. Relative to their own historical trends, Hungary and Romania were the only countries that had interest rates within their historical boundaries. The Polish and Czech interest rate fell below the lower boundary by the end of the period. The Slovakian interest rate (purple line) is the only rate which remained outside of its historical range throughout the time period, remaining persistently at their lower bound levels for bond yields. This suggests that we should continue to see movement in the yields for Slovakia over the coming weeks as they either return to their means or settle on new levels.