Nomura: MNBʼs policy ʼstands aloneʼ among ʼpostmodernist policiesʼ


The National Bank of Hungary (MNB) is seen to “stand alone in the world of postmodernist central bank policy now that Turkey’s TCMB, the father of central bank postmodernism, says it may simplify monetary policy”, analysts of Nomura said in a press release issued on Friday.

“We look here at the imminent arrival of the ten-year duration swap set to start next week and some of the market and structural reactions to duration swaps being offered so far,” Nomura said.

According to Nomura “one risk we see to the trade is another Bund curve steepening as in April-June. This event caused major shockwaves in CEE bond curves, which started with POLGB 2s10s steepening from 70 bps to 140 bps in two months. The HGB curve then followed from 120 bps to 200 bps. With positioning cleaner now, we find a repeat of the same magnitude of steepening unlikely in this respect.”

Another risk Nomura’s analyts see is that “the market has fully priced in the anticipated extra demand for ten-year HGBs due to the duration swap extension. The risk is greater-than-expected pre-positioning for the event. However, we think this is not that likely as ten-year HGBs have underperformed POLGBs by around 20 bps when the announcement of the ten-year auction came during this time. Another risk is the curve moves in parallel and does not flatten, and there is some evidence that this happened in the past. However, with the front end anchored more, we see less risk of this this time with the ten-year.”

As trade “also works in other forms” Nomura’s analysts believe that “given less room for the Bund curve to flatten aggressively from here, it can be boxed there for further leverage though it is still negative carry. Equally, given the performance of the ten-year ASW in Hungary, where there has been widening from 20 bps to around 60 bps over the past two months, there is also a possible trade there (or at the very least such pricing suggests the ten-year leg of our trade), this ASW trade is positive carry as well. However, part of the problem with ASW, is that the bond does indeed outperform for a period but then the IRS catches up – adding an extra degree of timing complexity. A more complex 2-year swap pay ten-year bond buy trade is also possible to take account of the rise in inflation impact.”


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