BUDAPEST/WARSAW: Hungary's 10-year government bond yield dropped to record lows, bucking a trend in Europe and the United States, as the National Bank of Hungary reaffirmed that it would maintain loose policy and stimulus for long-term interest rates to fall.
The central bank left interest rates at record lows on Tuesday, as expected, and said it would maintain liquidity in the market in the first quarter of 2018. It is expected to keep its base rate at record lows for the next two years.
"In the medium term we should expect yields and interest rates stabilizing at very low levels in the Hungarian economy," Erste analyst Orsolya Nyeste said in a note.
Plans for new interest rate swaps and for the central bank to buy mortgage bonds have helped Hungarian long-term yields down sharply. Yields fell 5 to 7 basis points further on Tuesday from Monday's fixing. The yield on the 10-year benchmark bond traded at a record low of 1.99 percent, down 7 basis points.
Polish bond yields, in contrast, rose 2 to 8 basis, tracking a global trend, with their curve steepening. The 10-year bond traded at 3.327 percent, 134 basis points above its Hungarian counterpart.
Some Polish central bankers have said interest rates should not change for at least the next year, but most analysts expect the bank to start to raise rates.
A batch of November Polish economic figures, including a 10.2 percent annual surge in retail sales underpinned the latter view. But the zloty did not strengthen, steadying at 4.2013 against the euro.
Dealers said the data were unlikely to change the central bank's stance and yields rose because of illiquidity and some year-end profit-taking.
Elsewhere, the Czech crown gained 0.1 percent to 25.68 to the euro, off a six-day high touched at 25.64.
The Czech central bank is expected to keep interest rates on hold at its meeting on Thursday after raising them twice since August, but it may raise them again in the first quarter of 2018, a Reuters poll showed on Tuesday.
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