Business & Finance

Long-term yields fall on less worry over central bank hawks

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The nomination of Jerome Powell was well-flagged but came as a relief as he supports caution in the Fed's interest rate hikes.

Fast rises in US interest rates and a surge in the dollar would make assets in emerging markets including Central European economies relatively less attractive.

A drop in US 10-year Treasuries yields on Thursday improved sentiment across bond markets in the European Union's eastern wing, one Budapest-based trader said.

"An additional factor in the Hungarian market is that the central bank has signalled that it may take further steps to push long-term yields lower," another dealer said.

Hungary's 10-year bonds traded at a yield of 2.4 percent, down 6 basis points from Thursday's fixing. Poland's corresponding yield dropped two basis points to 3.4455 percent.

The Czech 10-year yield was bid lower by 10 basis points, even though on Thursday the Czech central bank (CNB) raised its key interest rate by 25 basis points for the second time in three months, while the 2-year yield was steady at 0.346 percent.

The Czech crown rebounded from an early fall, joining most regional currencies which were firming amid positioning ahead of US jobs data due later on Friday, which can influence expectations about Fed rate hikes.

On Thursday the crown fell half a percent against the euro from 4-year highs after the CNB's meeting.

The quarter percentage point rate hike met the expectations of most analysts, but the size of likely future hikes that investors read from the bank's comments was disappointing.

The crown has still firmed by over 5 percent this year, but the bank will need stronger levels to drive back inflation.

"With a calming of rate hike speculation we would now expect a decline of recently witnessed appreciation dynamics for the koruna," Raiffeisen analyst Wolfgang Ernst said in a note.

The crown traded at 25.68 against the euro at 1015 GMT, firming in tandem with the forint and the leu .

The CNB increased its forecasts for the Czech budget surplus for this year, and September figures showed a higher-than-expected surplus.

In equities markets, a more than 3 percent fall in MOL shares knocked Budapest's main index down from Thursday's record highs, after the oil group reported lower-than-expected third-quarter earnings.

 

 

Copyright Reuters, 2017