EM CEEMEA CREDIT: PKNPW: 1Q25 results, solid profitability and FCF

• The German 2yr Yield had a brief test through the 2025 low, lowest since October 2022.
• While this is true for the Yield, the DUM5 is still some way short of the April 2025 high at 107.775.
• Today, reference 107.705, the 1.60% would equate to 107.77, just below the April High, and highest printed level since December.

ASW spreads to 3-month Euribor are 1.2-1.7bp higher, with the front-end outperforming (akin to what has been seen on the outright bond curve), showing no sign of concession ahead of this morning’s Schatz auction.

• Spreads are off the multi-week/month highs seen earlier in April, with broader risk-off price action, pricing of deeper ECB easing and speculation surrounding relocation out of Tsys into Bunds driving much of the recent spread widening.
• Over the longer run, the meaningful increase in German issuance should begin to weigh on Bund & Buxl spreads at some point, although the lack of an immediate uptick in supply (in addition to the factors listed above) has allowed long dated ASWs to move away from cycle lows that came in the wake of the “whatever it takes” fiscal announcement in early March.

ECB Survey of Professional Forecasters here

• "Expectations for headline HICP inflation were revised slightly upwards for 2025 and 2026 but remained unchanged for 2027 and the longer-term".
• "Expectations for HICPX were revised up by 0.1 percentage points for all horizons, including the longer term (to 2.0%)".
• "Respondents continued to expect a gradual strengthening of real GDP growth – from 0.9% in 2025 to 1.2% and 1.4% in 2026 and 2027, respectively".
• "In this round, SPF respondents were asked two special questions on (i) tariffs and protectionism and (ii) defence and fiscal spending".
  • "In terms of baseline inflation expectations, tariffs were expected to have a small upward impact in the nearer term (2025 and 2026), while defence spending was expected to have a similar impact in the medium term (2026 and 2027)".
  • "In terms of baseline real GDP growth expectations, tariffs were expected to have a downward impact in the nearer term (2025 and 2026), while defence spending was expected to have an upward impact in the medium term (2026 and 2027)"
  • "Respondents’ risk assessments for these factors largely corresponded to the direction of the impact on their baseline expectations. This suggests that respondents may have been cautious when incorporating these factors into their baselines and expressed this caution by accounting for risks in the same direction".  
• Note: Deposit rate expectations do not account for the latest dovish repricing in EUR rates: "Forecasters expected the ECB’s deposit facility rate (DFR) to fall to around 2.25% in the second quarter of 2025 and to decrease further, to around 2.00%, by the third quarter of 2025 and into 2026, before increasing to 2.25%, on average, by 2029".
• "The survey was conducted between 1 and 4 April 2025"