BUDAPEST: Hungarian Treasury bill yields could rise from record low levels as their recent plunge was probably caused by the temporary impact of a change in the central bank's money market tools, a central bank director was quoted as saying on Friday.
As of Aug. 1, the central bank opened a new two-week deposit facility for local banks instead using the two-week bills which were its main market liquidity management tool previously.
The yields set at Hungary's Treasury bill auctions fell sharply in past weeks even though longer-term government debt yields rebounded from months of falls due to concerns that the US Federal Reserve could signal a rise in interest rates in the world.
Three-month bills were sold at an average yield of 1.47 percent on Tuesday, well below the central bank's 2.1 percent base rate.
Since the central bank announced the two-week deposit facility in April, foreign banks and domestic fund managers have had to look for alternative places for their investments as they do not have access to the new facility.
Mihaly Hoffmann, the director responsible for the central bank's liquidity management tools and foreign currency reserves said there had been signs that domestic funds started to prepare for the shift late, only around the end of July.
"In theory, this late adjustment may have played a role in that demand for short-expiry discount Treasury bills was stronger than expected and that could have contributed to the decoupling of short-term government debt yields from the base rate," he told business news portal Portfolio.
"We believe that after a temporary period the situation can normalize," he added.
The bank made the changes to encourage market players to channel funds from its main liquidity management tool into government debt.
The shift has so far cut the amount of funds held in the bank's main liquidity facility by about 400 billion forints and the adjustment continues, Hoffmann said.
The bank could meet its goal of a 600-1000 billion forint reduction if demand for forint-denominated government bonds remains strong, the director added.
The stock of the central bank's two-week deposits was 4.977 trillion forints after a weekly tender held on Wednesday.
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