CEE: Bonds auction test market appetite for risk – ING

Yesterday's National Bank of Hungary meeting brought no change in rates to 6.50% as expected. The central bank accompanied this with hawkish comments but tried to avoid commenting on rate hikes that circulated in the Q&A session, ING’s FX Frantisek Taborsky notes.

Market can benefit from an increase in the rate differential

“The NBH seems to have done as much as possible while avoiding extreme scenarios in the current environment. The market also sees this and has taken hawkish guidance with a test of 400 EUR/HUF again but the 400-402 range seems to be here to stay. Of course, after the NBH meeting the focus shifts back to the global story and HUF is not under central bank control. At the same time, EUR/HUF is a key variable for the length of the pause in the cutting cycle and a possible return to the rate cuts discussion.”

“Paradoxically, it will now depend mainly on the outcome of the US election. We see HUF as the most exposed currency within the CEE region in case of a Trump victory, while relief in case of a Harris victory would be more visible in PLN and CZK. NBH will thus face a challenging following weeks. Overall, HUF may have found some new range, but it is not out of the woods yet and the coming weeks do not suggest calming. HUF recovery will thus take more time and will mainly depend on the global story.”

“Yields after the sell-off seem attractive, on the other hand, the market will remain risk averse at least until the outcome of the US election, which may reflect on weak demand and return the market to sell-off mode again. On the FX side, in the case of calm, the market may benefit from a significant increase in the rate differential. The CZK saw some gains yesterday and remains our favourite currency within the Central and Eastern Europe (CEE) region, which we believe has a chance to outperform CEE peers in the current environment.”