UniCredit: Interest rate swap auction will determine yield curve of government bonds

MNB

jessica fejos

The Hungarian central bankʼs next auction of its discount interest rate swaps (IRS) will be a bellwether for how well local banks will support the long end of the local-currency government bond yield curve, UniCredit said in a note on Friday. 

(Photo: Jessica Fejos)

The IRS tenders are designed to help banks manage their interest rate risks and encourage their demand for longer-term government bonds. By swapping fix rates to floating rates, IRS makes keeping longer-term Hungarian sovereigns more attractive for domestic banks, with the aim of diminishing Hungaryʼs reliance on external financing. Foreigners have reduced their bond holdings by HUF 490 bln since end-April, UniCredit said.

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