Hungarian central bank tweaks bond-buying programme to rein in yields

BUDAPEST: Hungary's central bank adjusted its government bond purchase programme on Tuesday, saying that it would make purchases flexibly, without limits on individual bond series, in order to reduce market volatility as yields were rising.

The National Bank of Hungary, led by an ally of Prime Minister Viktor Orban, has injected huge sums into the pandemic-hit economy over the past year, including almost 1.5 trillion forints ($4.9 billion) of government bond purchases. This has supported the local market at a time of surging borrowing needs.

"The third wave of COVID-19 and growing risks of reflation in developed economies have recently led to rises in yields and heightened volatility in financial markets," the bank said in a statement on Tuesday, after a non-rate-setting meeting of the Monetary Council.

"If warranted by the stability and liquidity position of the government securities market, the NBH's purchases may exceed a 50% share of individual series," it added.

It said the modification would not affect the weekly totals of its purchases, and therefore its monetary policy stance will remain unchanged.

Hungarian government bond yields, which have increased by 20-25 basis points since Friday as the forint has weakened, dropped on Tuesday after the bank's announcement.

"Yields have dropped by 10-15 basis points ... with purchases mainly at the long end," a fixed income trader said.

Last month, the central bank left interest rates unchanged and reaffirmed a cautious policy stance as it weighed expectations of an economic rebound against rising inflationary pressures.

On Tuesday, the bank also extended its corporate bond buying scheme to include non-financial state-owned entities, the Monetary Council said. Under the programme launched in 2019, Hungarian private companies have issued about 910 billion forints' worth of bonds.