The forint eased slightly on Monday as dollar buying amid worries over Britain's talks to quit the European Union weighed on Central European currencies. The forint traded at 321.75 against the euro at 1450 GMT, down 0.1 percent. Against the dollar it touched an 11-day low at 286.31.
Investors bought the greenback versus European currencies including the euro amid doubts that Britain will be able to secure a deal on quitting the EU next year. Hungarian government bond yields extended last week's slow rise, which followed weeks of falls.
The 10-year yield, trading around 3.67 percent, has risen 13 basis points in the past three sessions, but was still 25 basis points below a peak one month ago. The latest government debt agency figures dated Nov. 8 showed that the forint-denominated holding of foreigners reached a 3-year high over 4 trillion forints, after a steady rise since August.
Citigroup, in a note, introduced buying the dollar against the forint at 285.87, with a 295.7 target, as "a trade idea of the week". It said Hungarian government bonds had attracted renewed interest due to "the false perception of a favourable EUR price action over the past weeks", and rising concerns that Central Europe's economic growth is slowing. "We believe the biased inflow wave into HUF is not sustainable and the EURUSD weakness may be the trigger for a new USDHUF upside move," Citi said.
One or two big London names have bought the bonds as financing that is cheap, with the central bank (NBH) holding short-term interest rates at record lows, while keeping markets awash in money through its fx swaps, market participants said. It has been a key issue that delayed financing from the European Union for projects pre-financed by the government has started to flow in, generating hopes for further strong inflows late this year, said Peter Virovacz, analyst of ING in Budapest.
"It is even possible, that after its recent strong bond sales, (the debt agency) AKK will shift to bond repurchases in December," he said. Elsewhere in the region, the Romanian central bank (NBR) continued to pump money into interbank markets via its repo facility. Its allocations through the tenders and hopes for a fast decline in inflation helped Romanian government bond yields fall 30-40 basis points in the past weeks.
Yields in the secondary market were mixed, after Romania's inflation fell to 4.3 percent in October from the region of 5 percent, but remained above expectations. "We do not rule out a hike in the (NBR's 2.5 percent) policy rate at beginning of 2019," Erste analyst Eugen Sinca said in a note.
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