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CEE MARKETS-Hungarian debt firms, central bank eases policy further
December 20, 2016 / 3:19 PM / a year ago

CEE MARKETS-Hungarian debt firms, central bank eases policy further

* Hungarian central bank limits 3-month deposits further
    * Hungarian debt yields fall
    * Zloty, forint trade near multi-week high vs euro
    * Poland removes media ban that provoked protest

 (Adds Hungarian central bank decisions and comments)
    By Sandor Peto and Sujata Rao
    BUDAPEST/LONDON, Dec 20 (Reuters) - Hungarian government
bonds extended gains on Tuesday while European debt markets were
mixed after the Hungarian central bank eased policy further at
its meeting.
    The bank kept interest rates on hold, but cut its limit on
three-month deposits, squeezing out more money to encourage
banks to lend more cheaply and buy government debt. 
    It set a 750 billion forint limit for end-March, compared
with 900 billion forints this month.
    Analysts' median forecast had been 700 billion forints. The
smaller than expected cut did not have a market impact as
dealers and analysts anticipate loose monetary policy anyway.
    Growth in Central Europe has slowed this year although
increases to government spending and an inflow of European Union
funds could help it regain traction next year. 
    The bank creates additional demand for Hungarian debt
through the three-month-deposit limits and its fx swap tenders,
and demand is also boosted by year-end debt expiries.
    "Looking at spreads over U.S. Treasuries or Bunds, Hungarian
bonds have been outperforming," one Budapest-based fixed income
trader said. "The central bank's policy helps."
    The 10-year bond traded at a yield of 3.17 percent, close to
levels last seen before Donald Trump's U.S. election win last
month led to a surge in global long-term yields.
    The forint firmed 0.2 percent against the euro by
1437 GMT, in tandem with the zloty.
    The bank also lifted its forecast for 2017 GDP growth to 3.6
percent from 3 percent, and the Economy Ministry projected an
even more optimistic 4.1 percent.  
    Poland's parliament removed a temporary ban on access for
the media on Tuesday to defuse protests. 
    But concerns remain for the rule of law in Poland. That
could affect Polish assets in the long run and there are fears
that the budget deficit will rise next year, but the likelihood
of a pick-up in economic growth helps, analysts said.
    Polish assets have been firming in the past days despite the
worries, partly helped by Monday's figures showing a rebound in
industrial output and retail sales growth.
    The zloty may have also received support from the selling of
EU funds for the local currency in the markets by Poland, said
Manik Narain, EM strategist at UBS in London. 
    BGK, the state-owned bank which usually manages currency
interventions, tends to increase its activity in December but it
has not sold more euros this month than in previous years, one
Warsaw-based dealer said.
    "The market is pretty thin so it can have a big impact but I
can't see anything unusual," the dealer added.
    
           CEE      SNAP   AT  1537       
           MARKETS  SHOT  CET         
                    CURRENCIES            
                    Late  Prev  Dail  Chan
                    st    ious  y     ge
                    bid   clos  chan  in
                          e     ge    2016
 Czech     <EURCZK  27.0  27.0   +0.  -0.0
 crown     =>        200   325   05%    8%
 Hungary   <EURHUF  311.  311.   +0.  1.17
 forint    =>       0000  6500   21%     %
 Polish    <EURPLN  4.41  4.42   +0.  -3.4
 zloty     =>         12    04   21%    7%
 Romanian  <EURRON  4.52  4.52   +0.  -0.0
 leu       =>         00    12   03%    2%
 Croatian  <EURHRK  7.53  7.53  -0.0  1.41
 kuna      =>         30    15    2%     %
 Serbian   <EURRSD  123.  123.   +0.  -1.6
 dinar     =>       5200  6000   06%    6%
 Note:     calcula  prev  clos  1800      
 daily     ted      ious  e at  CET   
 change    from                       
                    STOC                  
                    KS                
                    Late  Prev  Dail  Chan
                    st    ious  y     ge
                          clos  chan  in
                          e     ge    2016
 Prague             917.  912.   +0.  -4.0
                      67    46   57%    4%
 Budapest           3176  3164   +0.   +32
                    6.37  6.38   38%  .80%
 Warsaw    <.WIG20  1943  1924   +1.   +4.
           >         .94   .67   00%   56%
 Buchares           7016  7059  -0.6   +0.
 t                   .07   .75    2%   17%
 Ljubljan  <.SBITO  701.  703.  -0.3   +0.
 a         P>         46    89    5%   76%
 Zagreb    <.CRBEX  1970  1967   +0.   +16
           >         .28   .12   16%  .61%
 Belgrade  <.BELEX  716.  718.  -0.2   +11
           15>        91    38    0%  .30%
 Sofia     <.SOFIX  573.  575.  -0.4   +24
           >          01    45    2%  .32%
                    BOND                  
                    S                 
                    Yiel  Yiel  Spre  Dail
                    d     d     ad    y
                    (bid  chan  vs    chan
                    )     ge    Bund  ge
                                      in
 Czech                                spre
 Republic                             ad
   2-year  <CZ2YT=  -1.0  -0.0  -027  -8bp
           RR>        55    64   bps     s
   5-year  <CZ5YT=  -0.1  0.00   +03  -2bp
           RR>        98     3  0bps     s
           <CZ10YT  0.49  -0.0   +02  -2bp
 10-year   =RR>        7    03  3bps     s
 Poland                                   
   2-year  <PL2YT=  1.99  0.00   +27  -1bp
           RR>         9     3  9bps     s
   5-year  <PL5YT=  2.74  0.02   +32   +0b
           RR>         2        4bps    ps
           <PL10YT  3.44  0.03   +31   +2b
 10-year   =RR>        2     9  7bps    ps
           FORWARD  RATE  AGREEMENT       
                    3x6   6x9   9x12  3M
                                      inte
                                      rban
                                      k
 Czech     <CZKFRA  0.24  0.18  0.15     0
 Rep       ><PRIBO                    
           R=>                        
 Hungary   <HUFFRA  0.36  0.39  0.47  0.39
           ><BUBOR                    
           =>                         
 Poland    <PLNFRA  1.74  1.76  1.79  1.73
           ><WIBOR     5     5     5  
           =>                         
 Note:     are for                        
 FRA       ask                        
 quotes    prices                     
 *****************************************
 *********************
 ($1 = 299.6900 forints)

 (Additional reporting by Jakub Iglewski in Warsaw; Editing by
Mark Heinrich)

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