Eastern European bond markets
Central and Eastern European
Opportunities and challenges
On the positive side, notably lower and generally declining inflation rates, as well as expected (further) interest rate cuts in the region and globally, should be mentioned. This is likely to lead to (further) falling bond yields and consequently rising bond prices.
On the negative side, Central and Eastern Europe continue to face weak economic momentum, which so far shows little sign of significant revitalisation for the region as a whole.
Economic differences in Eastern Europe
However, the picture is somewhat more differentiated for individual countries, partly due to different economic structures and unequal fiscal room for manoeuvre. Particularly the highly export-dependent countries (e.g., Czech Republic, Slovakia, Hungary) are suffering from Germany's economic problems. For countries like Poland, where domestic consumption plays a larger role, the situation looks somewhat better. However, there is generally a certain reluctance to spend among many consumers. If this reluctance eases somewhat in the coming year, it could provide positive impulses for the economy.
Central and Eastern European currencies recently somewhat weaker against the Euro
An important return component for Euro-based investors in Eastern European local currency bonds is the performance of the respective national currencies against the Euro, both positively and negatively. For Euro-denominated bonds of Eastern European issuers, there is, of course, no currency issue. However, the interest rates are usually lower than those of local currency bonds. Different or changing risk assessments for the respective issuers are reflected in the yield spreads of these Euro bonds compared to German government bonds. With the emerging Trump presidency in the USA, Central and Eastern European currencies recently weakened somewhat against the Euro.
Financial Markets on Hold It is still largely unclear what a Trump administration will do in the areas of foreign trade and currency policy. However, it is generally assumed that there will be adverse effects for Europe. These do not necessarily have to result from direct measures by the USA against Europe; it is also conceivable, for example, that China might redirect exports to Europe that it can no longer sell in the USA. The financial markets have partly priced in the change of power in the USA, especially through exchange rates. However, they cannot fully do so until the measures of the Trump administration are concretely decided or at least known. The uncertainties in this regard are likely to persist for a long time and represent a certain burden.
However, there are also positive expectations, for example for Poland. The long-blocked, but now released, EU aid funds are expected to provide strong positive economic impulses in the coming quarters. Croatia and Romania are also noticeably benefiting from financial inflows from the EU budget. In general, the EU currently provides strong support for most countries in the region. In the case of Hungary, however, a significant portion of these EU funds remains blocked. It is currently unclear if and when Hungary will meet Brussels' conditions for the release of these funds.
Noticeable improvements in Türkiye
One of the most interesting and important, but also riskiest, bond markets in Eastern Europe is Türkiye. The country's foreign exchange reserves have increased significantly, and there are noticeable advances in reducing dependence on the US dollar and the need for constant dollar inflows. The long-running galloping inflation is expected to come down significantly in the coming months, which would be positive for bond investors, the currency, and the economy as a whole.
Speaking of inflation: The trend in almost all countries of Central and Eastern Europe continues to point downwards. However, at least temporary counter-movements are foreseeable in some states, as previous government programs to limit price increases (e.g., for energy or food) come to an end. In general, the issue of inflation currently plays a subordinate role in the Eastern European bond markets.
The war in Ukraine remains a latent burden, particularly for the investment willingness of international capital investors, but also for companies in the Eastern European economies. Conversely, an end to the war would be a very positive development for the financial markets in the region, especially if it results in a long-term sustainable resolution of the conflict.
Raiffeisen-Osteuropa-Rent: a long history and attractive returns
Despite the uncertainties described, the region's
Raiffeisen-Osteuropa-Rent
Invest in Eastern European bond funds Fund details
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The Fund Regulations of the Raiffeisen-Osteuropa-Rent have been approved by the FMA. The Raiffeisen-Osteuropa-Rent may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: Poland, Türkiye, Hungary.