Tentative hopes for a deal on Greece by the weekend, improving Chinese share markets, and fresh data on Hungaryʼs expanding foreign trade balance in May increased confidence, illustrated by an unexpectedly strong sale of three-, five-, and ten-year Hungarian government bonds at the regular Thursday auction.
The success of the five-year tenor was also helped by the latest auction of the National Bank of Hungaryʼs (MNB) preferential forint interest rate swaps (IRS). The five-year tenor attracted huge demand, second only to that seen at the introduction of IRS a year ago, after the MNB announced replacing its two-week bills with a two-week deposit facility. By swapping fix rates to floating rates, IRS makes keeping longer term Hungarian sovereigns more attractive for domestic banks, diminishing Hungaryʼs reliance on external financing.
Morgan Stanley sticks to its overweight stance on Hungaryʼs local-currency government bonds. The central bankʼs two new measures, announced earlier this week — it has brought forward the tightening of its foreign exchange funding adequacy ratio to 2016 from 2017, and launched a 10-year IRS facility — are aimed at reducing Hungaryʼs external vulnerability and increasing domestic demand for local bonds. In a note on Thursday, Morgan Stanley projected that both the bond-yield curve and the swap curve will continue to flatten, given the relative steep curve compared with other central European countries.
The Hungarian central bankʼs latest measures, aimed at reducing currency and maturity mismatches in banksʼ balance sheets, have, however, little direct impact on the forint and rates, Bank of America Merrill Lynch said in its note. But the measures have positive implications for credit as more prudent management of banksʼ balance sheet risks is always beneficial, BofAML added. The house expects the MNB to continue easing, with one, last 15 bps rate cut, and remains positive on the forint for the medium term.
Moodyʼs Investors Service is scheduled for a potential review of its junk rating for Hungary Friday. Analysts say it could upgrade Hungaryʼs credit rating outlook to positive, from the current stable, meaning its next step would be an actual credit rating upgrade. Fitch Ratings has already raised its outlook on Hungarian debt to positive in May to reflect a decline in Hungaryʼs external debt and the countryʼs robust current account surplus. S&P also did so in March. At its last such potential upgrade in March, Moodyʼs remained pat.
The forint traded at 286.03 to the dollar, up from 287.22 late Wednesday. On Thursday, it moved between 284.54, a four-day high, and 287.73, after a second nearly four-month low within three days at 290.57 Tuesday intraday.
It was quoted at 301.69 to the Swiss franc, up from 303.63 late Wednesday. Its range on Thursday was 299.69, a six-day high, to 304.07, after a more than five-month low at 306.16 late last Sunday. 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, it reached the highest at 281.07 on February 26.
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