BUDAPEST: Hungary cut back a sale of 12-month Treasury bills sale amid an emerging-market rout as its currency slid to two-year-low and investors drove up yields by almost 67 basis points.
The forint has come under pressure as investors pull back from emerging markets, after the US Federal Reserve withdrew more of the monetary stimulus that has boosted emerging assets in recent years, including Hungary's.
Dealers said the forint also underperformed the rest of Central Europe after the head of central bank, Gyorgy Matolcsy, said on Wednesday that the inflation outlook provided "some room" to cut interest rates from a low of 2.85 percent.
"This was a dead weak auction," said a fixed-income trader in Budapest.
"Now there is some buying interest in the market ... but seeing that yields rose 70 basis points and they still could not sell the normal amount -- no comment."
Debt agency AKK cut its original offer by 15 billion forints, selling 35 billion forints ($154.71 million) of the paper at an average yield of 3.51 percent, 67 basis points higher than 2.84 percent at an auction two weeks ago.
That tender was before the National Bank of Hungary's latest cut in its base rate to a new low.
That prompted some analysts to flag risks to the forint if global sentiment deteriorated.
Market yields on Hungary's benchmark bonds rose as much as 26 basis points on Thursday from late Wednesday, with the three-year segment rising the steepest.
Forward rate agreements are pricing in a 15-basis-point rate increase for February. Hungary's fundamentals have improved over the recent years and a hefty current account surplus has supported the forint. On Wednesday the central bank's Matolcsy said there was a huge difference between the Hungary and Turkey's situation.
"The bottom line is that this is precisely the market situation (we have repeatedly highlighted) in which overly low rates in Hungary will have their telltale result," Commerzbank said in a morning note before the bill tender.
"Recent central bank rate cuts, below the 3 percent threshold, are overdone in our view," it said. "For the time being, we do not expect a policy reversal.
But, were crisis-like conditions to intensify around EM in general, NBH's rate cut cycle could be over quickly."
Comments
Comments are closed for this article.