Analysts’ Views:
RS Rates: In line with our and market expectations, the NBS decided at yesterday's MPC meeting to keep the key interest rate unchanged at 8.5%. Even though inflation is moving below the target interval, the NBS felt no need for additional cuts, as it expects fading effects from low food prices and sees the CPI figure moving toward the center of the 4%+/- 1.5 bands by year-end.
Also, the official wording stresses the importance of increasing volatility on international markets, a factor which could affect foreign capital flows and risk premiums and additionally weaken the Serbian dinar (which has already hit a two-year low). Even though there were no official comments on fiscal policy, we can expect the NBS to closely monitor fiscal developments and government announcements, especially in September, when we should see the budget revision proposal and presentation of consolidation program. Looking to YE, we see room for more easing towards the 8% mark, primarily dependent on FX and fiscal developments (consolidation program and success of IMF talks).
HU Auctions: Despite the tensions of the last couple of days on the domestic bond market, demand for papers at yesterday’s bond auctions proved high, exceeding HUF193bn in total for the three papers (3Y, 5Y, 10Y). The 5Y bond was again the most popular among investors, likely due to attractive yield levels and the existence of the 5Y IRS facility provided by the central bank to commercial banks in order to mitigate interest rate risks. The Debt Management Agency sold HUF 75bn worth of papers altogether, vs. the offered amount of HUF 52bn. At the non-competitive tender held in the afternoon, an additional HUF 8.7bn of papers was sold. The maximum yields of the 3Y, 5Y and 10Y bonds were 3.68%, 3.99% and 5.01%, respectively.
Thus there were considerable (60-76bp) yield increases, compared to the auction levels seen two weeks ago. It’s favorable however, that there was some yield declines, compared to secondary market levels from a day ago, indicating declining tensions on the market. The forint has not really reacted to the good auction results, as movements of the local currency are to a more extent connected to global tensions. We expect somewhat stronger forint (307) at the year end, while the 10Y bond yield is expected to stand at 4.80, with some risks pointing to the upside.
Traders’ comments: The ECB meeting was overshadowed by the escalating political tension between Russia and the West. Newly announced counter sanctions by Russia banning a wide range of agricultural products from Europe and the United States is a first response by the country with further sanctions being considered in aviation such as a ban for flights over Siberia.
Client flow in corporate bonds indicated risk aversion to CEE names with most inquiries on the BID side. While the latest auction in Hungary proved successful, the EURHUF continued to trade at 316 area not far from all-time lows of 324. In HGBs we witness a pause in the selloff with yields trading 2 to 13 bps tighter d/d but with the trend remaining negative. German 10Y continued to set new lows, this morning trading at 1.027% while the US 10Y also headed towards 2.34%. This is on the back of positive initial jobless claims in US of 289k vs exp. of 304.
This document is intended as an additional information source, aimed towards our customers. It is based on the best resources available to the authors at press time. The information and data sources utilised are deemed reliable, however, Erste Bank Sparkassen (CR) and affiliates do not take any responsibility for accuracy nor completeness of the information contained herein. This document is neither an offer nor an invitation to buy or sell any securities.
Recommended Content
Editors’ Picks
AUD/USD remains under pressure above 0.6400
AUD/USD managed to regain some composure and rebounded markedly from Tuesday’s YTD lows in the sub-0.6400 region ahead of the release of the Australian labour market report on Thursday.
EUR/USD holds above 1.0650 amid renewed selling pressure in US Dollar
The EUR/USD pair edges higher to 1.0672 on Thursday during the early Asian session. The recovery of that major pair is bolstered by renewed selling pressure in the US Dollar and a risk-friendly environment.
Gold retreats as lower US yields offset the impact of hawkish Powell speech
Gold prices retreated from close to weekly highs during the North American session on Wednesday amid an improvement in risk appetite. The bullish impulse arrived despite hawkish commentary by US Federal Reserve officials.
Bitcoin price uptrend to continue post-halving, Bernstein report says as traders remain in disarray
Bitcoin price is dropping amid elevated risk levels in the market. It comes as traders count hours to the much-anticipated halving event. Amid the market lull, experts say we may not see a rally until after the halving.
Australia unemployment rate expected to rise back to 3.9% in March as February boost fades
Australia will publish its monthly employment report first thing Thursday. The Australian Bureau of Statistics is expected to announce the country added measly 7.2K new positions in March after the outstanding 116.5K jobs created in February.