CEE MARKETS-Forint weakens, yields drop after Hungary central bank ups bond purchases

Credit: REUTERS/Bernadett Szabo

The forint weakened on Wednesday, underperforming regional peers, while Hungarian government bond yields dropped after the central bank said on Tuesday it would increase its government bond purchases.

By Anita Komuves

BUDAPEST, Aug 26 (Reuters) - The forint weakened on Wednesday, underperforming regional peers, while Hungarian government bond yields dropped after the central bank said on Tuesday it would increase its government bond purchases.

The National Bank of Hungary left its base rate unchanged on Tuesday and announced an increase in its weekly bond buys, which has driven yields lower, traders said.

Yields on the 20-year bond dropped 23 basis points since the announcement, from 3.05% before the NBH announcement to 2.82%, according to two fixed income traders in Budapest.

They both expect long-term bond yields to drop further in reaction to the expansion of the bank's programme.

Yields on the 10-year bond fell 7 basis points to 2.24% while 5-year bond yields dropped 5 basis points to 1.57% and yields on 3-year bonds were at 1.12%, down 2 bps, they said.

The forint reached a one-month low around 354 against the euro after the central bank's meeting but rebounded to 352.22 after Deputy Governor Barnabas Virag's comments that the bank has no room to cut short-term rates further.

These gains all evaporated on Wednesday. The currency EURHUF= was down 0.51%, trading at 354.300 per euro by 0952 GMT.

The central bank, which cut its base rate in June and July, said in a statement that it expected the disinflationary effects of the pandemic to rein in price growth.

Inflation came in at a higher-than-expected annual 3.8% in July and GDP dropped by 13.6% year-on-year in Q2.

"The FX market correctly suspects that the MPC will probably not re-think its stance over the coming year, no matter what happens to inflation," Commerzbank said in a note.

"This is why the forint is likely to keep underperforming: we forecast EUR-HUF to trade at 360.00 levels next year."

Elsewhere, the Czech crown EURCZK= eased 0.15% to 26.205 versus the euro while the Polish zloty EURPLN= and the Romanian leu EURRON= were stable.

Hungary plans to finance an increased budget deficit this year by boosting its forint-denominated government bond sales, the debt management agency AKK said on Wednesday.

The Polish state investment bank BGK will hold a bond auction on Wednesday to finance the government's anti-crisis shield to protect the economy from the coronavirus.

The Czech finance ministry is also holding a government bond auction later today.

Stocks in the region were mixed, with Budapest .BUX weakening 0.41% and Prague .PX flat. Warsaw's equities .WIG20 were up 0.33% and Bucharest's index .BETI firmed 0.37%.

CEE MARKETS

SNAPSHOT

AT 1152 CET

CURRENCIES

Latest

Previous

Daily

Change

bid

close

change

in 2020

EURCZK=

Czech crown

EURCZK=

26.2050

26.1650

-0.15%

-2.95%

EURHUF=

Hungary forint

EURHUF=

354.3000

352.5000

-0.51%

-6.54%

EURPLN=

Polish zloty

EURPLN=

4.4065

4.3990

-0.17%

-3.41%

EURRON=

Romanian leu

EURRON=

4.8405

4.8419

+0.03%

-1.08%

EURHRK=

Croatian kuna

EURHRK=

7.5260

7.5285

+0.03%

-1.07%

EURRSD=

Serbian dinar

EURRSD=

117.5000

117.6000

+0.09%

+0.06%

Note: daily change

calculated from

1800 CET

Latest

Previous

Daily

Change

close

change

in 2020

.PX

Prague

.PX

908.02

909.0500

-0.11%

-18.61%

.BUX

Budapest

.BUX

35581.47

35593.67

-0.03%

-22.79%

.WIG20

Warsaw

.WIG20

1828.21

1821.29

+0.38%

-14.97%

.BETI

Bucharest

.BETI

8815.36

8785.18

+0.34%

-11.65%

.SBITOP

Ljubljana

.SBITOP

853.45

851.71

+0.20%

-7.82%

.CRBEX

Zagreb

.CRBEX

1620.74

1616.99

+0.23%

-19.66%

.BELEX15

Belgrade

.BELEX15

689.45

691.16

-0.25%

-14.00%

.SOFIX

Sofia

.SOFIX

433.78

433.71

+0.02%

-23.65%

Yield

Yield

Spread

Daily

(bid)

change

vs Bund

change in

Czech Republic

spread

CZ2YT=RR

2-year

CZ2YT=RR

0.1300

-0.0420

+077bps

-5bps

CZ5YT=RR

5-year

CZ5YT=RR

0.7030

-0.0030

+133bps

-2bps

CZ10YT=RR

10-year

CZ10YT=RR

1.0350

-0.0090

+144bps

-3bps

Poland

PL2YT=RR

2-year

PL2YT=RR

0.1620

0.0130

+081bps

+0bps

PL5YT=RR

5-year

PL5YT=RR

0.7670

-0.0080

+139bps

-3bps

PL10YT=RR

10-year

PL10YT=RR

1.3570

-0.0110

+176bps

-3bps

FORWARD

3x6

6x9

9x12

3M interbank

Czech Rep

CZKFRAPRIBOR=

0.36

0.37

0.44

0.34

Hungary

HUFFRABUBOR=

0.76

0.83

0.89

0.61

Poland

PLNFRAWIBOR=

0.24

0.24

0.25

0.23

Note: FRA quotes

are for ask prices

**************************************************************

(Additional reporting by Jason Hovet in Prague and Alan Charlish in Warsaw; Editing by Alex Richardson)

((komuves.anita@thomsonreuters.com (+36 70 795 8815))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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