Forint rebounds, boosted by rise in debt yields

BUDAPEST: The forint hit a 3-week high against the euro on Tuesday, rebounding from falls last week caused by data showing a jump in annual inflation in March.

A recent surge in Hungarian government bond yields, partly driven by a rise in Bund yields, has made the papers more attractive - even though that rise stalled on Tuesday. "That (yield rise) may be helping the forint too," one Budapest-based dealer said.

At a weekly fx swap auction on Monday, the NBH continued to cut forint liquidity provided to banks, but the closely watched 3-month interbank BUBOR rate stayed at 0.16 percent, below the NBH's short-term target at 0.23 percent, another dealer said.

The forint strengthened to break through 320 against the euro and briefly firmed further through its 100-day moving average of 319.5.

It retreated to 319.91 by 0921 GMT, still firmer by 0.1 percent on the day, while its Central European peers eased slightly.

The zloty shed less than 0.1 percent, after the Polish finance ministry projected a slowdown in economic growth to 3.3 percent by 2022 from about 4 percent this year.

The yield on Hungary's 10-year government bond yield dropped 1 basis point to 3.24 percent, off Monday's 4-month highs reached after a 40 basis point rise in three weeks.

Its spread over Poland's corresponding yield, which traded flat at 2.87 percent, stayed near Monday's 5-week highs.

Polish bond yields took a breather after a decline on Monday which brought the spread of the 10-year yield over the corresponding Bund to a 4-week low at 282 basis points.

The fall followed an announcement from the government, which is gearing up for elections late this year, of changes in the pension system next year, including transferring all state-guaranteed private pension funds to individual retirement accounts.

Along with tax changes, the measures reduce the risk that Poland's budget deficit will breach the European Union's ceiling, 3 percent of economic output, next year, Santander analysts said in a note.

The region's equities markets were mixed and rangebound.

Budapest's main index rose, driven by a 2.6 percent jump in the shares of pharmaceuticals Richter, after JP Morgan raised its price target for the share.

Prague's index was knocked down by a 4.3 percent fall in the shares of Komercni Banka which started trading without a dividend sheet.