Helped by the dollar’s strong gains versus the euro, the Hungarian currency touched a nine-month high against the euro while investors bought Central European government bonds to maximise profits ahead of policy rate cuts in the region they now take almost for granted in March.
Traders said hunger for the region’s relatively high yields could persist after the European Central Bank (EVB) launches its asset buying programme also in March. Anticipation of the ECB’s QE has already driven down high-rated euro area yields, widening emerging Europe’s risk premium.
Hungarian local-currency government bonds are also gaining as some analysts expect a return of Hungary to investment grade, from its current junk status, by the end of this year or in first half of next year.
Erste Bank expects an improvement in Hungary’s credit ratings if the country’s public debt falls this year. If public debt in proportion of GDP gets close to or below 76% of GDP by year-end from a preliminary 77.3% at the end of last year, a credit rating upgrade to investment grade would come in the first half of next year, it said in a note on Thursday. Against this backdrop, Erste expects 10-year local-currency government bond yields to drop to around 2.1% by end-June this year. The government forecasts public debt may drop to 75% of GDP by the end of this year.
Tuesday’s comments from Fed chair Janet Yellen also showed that the US would not rush into interest rate hikes that would make Central European debt yields relatively less attractive. But Fed policymaker James Bullard said on Thursday the US central bank should drop the word “patient” from its statement already at its March 17-18 meeting, in order “to provide optionality … going forward.” This reversed early gains of the forint against the dollar that got a boost from Mr Bullard’s comment.
The forint traded at 269.74 to the dollar, down from 268.15 late Wednesday. On Thursday, it moved between 266.61, an almost three-week high, and 270.44.
It was quoted at 283.17 to the Swiss franc, down from 282.62 late Wednesday. Its range on Thursday was 281.25 to 283.36. Its intraday high was the best since its crash to an all-time low at 378.49 on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro.
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