Forint rebounds, long-term yields fall after 1-week deposit rate hike

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PRAGUE / BUDAPEST, Nov. 25 (Reuters) – The forint rebounded further from an all-time low on Thursday, as long-term government bond yields fell after Hungary’s central bank raised its rate by One-week deposit of 40 basis points at 2.9% as it combats rising inflation risks.

The increase in the deposit rate was the second in a week, after the bank raised its prime base rate to 2.1% earlier this month. Read more

By 2:16 p.m. GMT, the forint had strengthened 0.81% to 365.70 per euro, after a session low near 368.

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“This (increase in the deposit rate) will be enough to put out the fire, as the forint has been really singled out lately, but the international environment really needs to change for the forint to strengthen significantly,” said a seller.

The forint touched an all-time low of 372 per euro on Tuesday, as central European currencies came under pressure from a strong US dollar and an increase in COVID-19 cases in Europe, prompting concerns among investors about the economic impacts.

Hungarian government bond yields at the long end of the curve fell around 20 to 25 basis points after the week-long rate hike, falling below 3 and 5 year bond yields and reversing the yield curve, two fixed income traders said.

“With so many rate hikes, investors can expect inflation to drop beyond 10 years, which means it might be worth buying long-term bonds,” said an FI trader in Budapest.

Another trader said the inverted curve could also be an anomaly resulting from low market liquidity thanks to a public holiday in the United States.

The yield on the 5-year bond was approximately 4.37% while the 10-year yield was 4.28%. The 15-year yield was 4.24% while the 20-year bond yield was 4.14%.

Elsewhere, the Polish zloty gained 0.26% and the Czech crown edged up 0.03%.

Central banks in the region have started to tighten policy in response to spikes in inflation linked to global supply chain problems and rising energy costs, as well as tight labor markets in Europe central.

Polish central bank governor Adam Glapinski told Interia’s website on Wednesday that recent rate hikes should help the zloty, which has hit its lowest level in 12 years. Read more

** Hungarian Forint since 2008: https://tmsnrt.rs/3xoDmH6

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The forint has recovered somewhat since hitting a new all-time low

Reporting by Jason Hovet in Prague and Anita Komuves in Budapest; edited by Uttaresh.V, Kirsten Donovan

Our standards: Thomson Reuters Trust Principles.

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