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Hungarian yields tick higher crown holds onto gains eyeing central bank

BUDAPEST:  The crown held onto its recent gains boosted by expectations for a fresh rate hike by the Czech central bank on Thursday, while the forint was steady after the Hungarian central bank’s comments which confirmed its dovish stance. Hungarian government bond yields, which have been rising over the past week tracking increasing German and core market yields, edged only marginally higher, with the 10-year bond trading around 2.29-2.30 percent, up 1-2 basis points from Tuesday’s fixing. It has been loosening policy via unconventional tools, most recently using a new interest rate swap provided for commercial banks trying to bring longer-term yields lower. However, some investors say a rise in core yields is a factor that will continue to affect Hungarian bond yields and which the bank will also have to take into account. Hungarian yields cannot do anything else but track rising core market yields,” a trader in Budapest said. Therefore, I think the central bank’s interest rate swap programme will not be able to bring yields lower: it will be enough to curb the pace of the rise in Hungarian yields.” The central bank will offer 5-year and 10-year IRS to banks on Thursday for the first time under its tweaked conditions. On Thursday the Czech central bank is widely expected to raise its main repo rate by 25 basis points to 0.75 percent on Thursday to fight inflation as the Czech economy grows at a fast pace. This would be the bank’s third rate hike since August 2017.