CEE-Forint companies, Hungarian yields rise as markets wait for another rate hike
Band Kristina Than
BUDAPEST, June 28 (Reuters) – the forint EURHUF= rallied on Tuesday as government bond yields edged higher ahead of a Hungarian central bank meeting where interest rates are expected to be raised further in a bid to curb soaring inflation.
The forint hit a record low of 404.50 against the euro on Monday, decoupling from its Central European peers and falling around 8% this year, as investors increasingly worry about a delay in talks between Hungary and Brussels on the release of billions of euros. EU recovery funds.
Other factors, such as Hungary’s high budget deficit, the relatively high level of public debt in the region, and the government’s recent decision to impose heavy windfall taxes on banks and a set of companies, also weighed on investor confidence.
On Tuesday, the forint gained 0.7% to 400 against the euro.
“The biggest risk is the ongoing debate on European funds, that’s what has been assessed in this uncertainty,” said a bond trader in Budapest, adding that Hungary’s risk profile had deteriorated by relation to Poland.
Hungary’s 10-year government bond yield rose about 3-4 basis points to 8.34% on Tuesday after jumping about 40 basis points on Monday according to the agency’s page. HUBONDFIX debt. The Polish 10-year bond was trading at 7.4%, up 10 basis points, extending its rise from Monday.
Traders said Hungarian and Polish bonds were showing high volatility and yields were now rising after a big rally last week, following core market returns.
“The Polish debt market is booming (…). Two weeks ago (the yield on 10-year Treasury bills) was above 8%, last week it fell to 6.9% , so the volatility is huge,” said Mateusz Sutowicz, a financial market analyst at Bank Millennium said.
“Volatility remains elevated … due to changing expectations for the target level of interest rates in Poland, and these are influenced by fears of a global recession.”
Hungarian central bank policymakers are expected to stick to a 50bp pace of tightening on Tuesday, but some analysts in a Reuters poll have forecast a bigger increase in the base rate to 5.9% .
“A 50 basis point rise will not support the markets,” said a Hungarian fixed-income trader, adding that if the bank opted for a lower rise, the forint would weaken further.
“Significant forint weakening may require a larger (base) rate hike, with a 100 basis point move realistic,” brokerage firm Equilor said in a note. He added that the effective rate – the one-week deposit rate – was currently at 7.25% and could rise further on Thursday.
Elsewhere in central Europe, the Czech crown EURCZK= was flat while the Polish zloty EURPLN= was also stable.
At 09:38 CET
Note: daily change
+437 basis points
+706 basis points
+4 base points
+646 basis points
+6 basis points
+586 basis points
+10 basis points
Note: ENG Quotes
are for asking prices
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(Reporting by Krisztina Than, Additional reporting by Anna Wlodarczak-Semczuk. Editing by Carmel Crimmins)
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