Forint firm on interbank market

Amidst the dayʼs stock market rout, scant hopes for the US Fedʼs restraint and flight into safe havens like the Japanese yen and gold drove the dollar steeply down against a basket of major currencies. So the euro also gained relative to the dollar, and left the Hungarian currency way behind for most of the day. The trend turned around only when the euro slowed against the dollar late in the afternoon, and the forint met resistance beyond 316 to the euro. The euro-dollar course at least helped the forint regain some ground versus the dollar.

   In domestic news, the national economy minister said Hungary would issue a Eurobond in either dollars or euros in January or February, and Hungary has mandated the Bank of China to organise a non-deal road show for the possible issue of a yuan-bond.

   Meanwhile, the rising yield path of Hungarian sovereigns still pressures the forint.

   On Thursday, the government sold HUF 53 bln of three-, five- and ten-year bonds at the regular auction, a mere HUF 1 bln more than planned against bids totaling HUF 101 bln, with average yields rising steeply compared to both the previous auction and the secondary market benchmark, and already exceeding yields of a year ago for the three- and the ten-year tenor.

   Foreign investors are probably returning, but they also want higher returns after yields have been driven too low for their liking by autumn as a result of the central bankʼs efforts to shepherd domestic banks inti Hungarian government paper.

   Low participation of domestic banks on Thursday could be measured on a previous regular auction of the National Bank of Hungary (MNB) where domestic banks bid only HUF 10 bln for the central bankʼs risk-mitigating interest rate swap (IRS) contracts against an offer of HUF 65 bln. Only domestic investors are eligible for IRS contracts.

   Previously, Tuesdayʼs regular auction of three-month Treasury bills saw rising demand and an allotment worth HUF 44 bln instead of the HUF 40 bln offered, about twice the usual amount in the last couple of months, but yields jumped to 1.13%, the highest since last June, from 0.82 a week earlier, and also 19bps above the secondary market benchmark.

   Given the circumstances, attempts of the national economy minister to support the forint verbally by announcing that Hungaryʼs general government deficit will continue to shrink this year and could reach zero "in the foreseeable future", did not help much.

   The forint traded at 290.05 to the dollar, up from final quotes at 292.01 on Wednesday. On Thursday, it moved between 288.87 and 292.47, after a nearly five-week low at 293.94 late on Monday. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

   The forint was quoted at 289.12 to the Swiss franc, up from 289.87 late Wednesday. Its range on Thursday was 288.35, an eight-day high, to 290.97, after a one-week high at 288.40 Wednesday intraday. Since its crash to an all-time low at 378.49 to the franc on January 15, 2015, when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26, 2015.