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The risk is growing that the entire curve starts pricing in a turnaround. As a consequence Czech government bonds should underperform versus Bunds, possibly closing the current negative yield gap eventually.
The GDP growth forecast was officially reduced this week to 2.3% from 3.3%. And on Wednesday the quarterly inflation report of CPI was cut to 0.7% (1.6%) for 2003 and to 2.9% in 2004.
The picture of lower inflation and lower growth, with a substantially higher fiscal deficit alongside (raised also to 6.2% of GDP from 5.9%) was unable to stimulate the market.
The overall focus is now on the release tomorrow (Friday) of the state budget and a special parliamentary session on fiscal reform plans on Saturday. Here might be one key for the direction in the next trading week.