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CE bonds continue to recoup previous losses

The Hungarian forint is approaching one-year highs

Government bonds in Central Europe have continued to recoup their previous losses and the process has been clearly mirrored in their successful auctions on the primary market. A handful of factors have been supporting fixed-income instruments in the region. First, widespread relief concerning imminent threat of the Grexit has allowed ECB’s bond buying program (set to launch in March) to return to the forefront. Secondly, Hungarian and Polish government bonds still offer decent yields amidst the global low-inflation (or even mild deflation) environment. Third, markets in both Poland and Hungary have been betting on an official rate cut in March. Last but not least, additional encouragement has been provided by the latest semi-annual testimony of Fed president Yellen to the U.S: Congress. Her message stayed close to the statement pronounced at the January Fed meeting and suggested that interest rate lift-off was unlikely to happen at the next two meetings of the central bank.

No wonder then that Central European currencies have performed well, too. In this respect, namely the Hungarian forint is worth mentioning, as it is currently testing its on-year highs (EUR/HUF 304). The forint has been supported not only by the above-mentioned factors, but also by NBH’s monetary decision made two days ago. The NBH left its base rate unchanged at 2.1%, showing thereby a slightly less dovish sentiment than markets had expected. Still, we think that a chance for a rate cut has definitely been there, but its conversion into reality may be highly dependent on a parallel decision to be made by the Polish central bank. In our view, the most likely scenario is a ‘just’ 10bps cut delivered by the NBH in March.

This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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