Hungarian yields spike higher

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Currencies: Czech unemployment sharply higher at the beginning of the year
Fixed Income: Hungarian yields spike higher

Czech Republic

The EUR/CZK tested the 26.30 resistance on Friday, but it did not break the level in a sustainable level. The reason for koruna’s weakness was global fears related to Greece’s/Portugal’s contagion. 
Today, there have been two interesting releases. First, the December trade balance figures showed that the Czech Republic reached a much higher trade surplus last year (CZK 153bn) than in the 2009 (CZK 86bn). Secondly, there has been a release of the January unemployment figures. The unemployment rate bounced to the 9.8 % level, which was worse than the market had expected. Both releases, however, failed to weaken the koruna, which has started the on the positive note supported by zloty’s gains and a retreat of risk aversion at the onset of European equity trading.

The Czech fixed-income market further digested the outcome of the last CNB’s meeting at the end of the last week. Since the new Inflation Report sounded more dovish than the market expected, it is not surprising that the curve steepened in a bullish fashion. 
This trend might easily continue, because according the latest CSO release the unemployment rate bounced to the 9.8 % level, which was worse than the market had expected.

Hungary

The Hungarian forint finished the week at this year’s low of 274.50 and US trading hours saw the pair testing the 275.00 level for the second time during the day after weaker-than-expected US payroll data was released. Risk aversion has thus remained the main driving force behind currencies and this could keep the forint on the slippery track over the coming weeks, albeit some consolidation is likely in the range of probably 272.00 and 275.00.

The Hungarian fixed income lost steeply on Friday and yields shot up to 8.00% (bid) at the long-end and close to 6.00% at the shorter-end. Investors started to worry about Hungarian bonds as the currency was sliding rapidly and fears mounted, when the 275.00 level came close as it is widely seen an important threshold for further rate cuts. Current weak sentiment is clearly shown by record wide long-term forward spreads, the 5y5y IRS spread over the euro widened to a 6-months high of 278bps. This is generally not a good sign for the outlook on the bond market, but of course there is some room for consolidation after the market lost almost 50bps last week.

Poland

The Polish zloty weakened further on Friday. As the currency came under pressure, the pair moved as high as 4.14 EUR/PLN. The sell off was primarily driven by the weakness on both global and local equity market. Warsaw´s blue chip index fell almost 4% to its lowest level since November. 
The domestic calendar is empty for this week and we are pretty skeptical concerning the global emerging markets sentiment. Hence we see the risk of further short term losses on the Polish fx market in the sessions ahead. The Polish currency could also underperform the rest of the region, especially the Czech koruna.

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