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Bond-market traders expect the central bank to increase base rate

Hungary's government bond market expects the central bank to take steps to improve the market situation, traders polled by MTI said after an agreement between the Hungarian Central Bank (MNB) and the European Central Bank (ECB) on a loan up to €5 billion to raise the MNB's liquidity in the domestic foreign-exchange swap market.

Traders said it is not yet obvious what the MNB will spend the loan on.

Traders said it would be important that the MNB take part in raising liquidity and take steps intended to provide long-term instruments as well. The analysts said they expected the MNB's Monetary Council to increase the base rate at its Monday rate- setting meeting. They noted that the euro-forint rate jumped to as high as 273 in North America overnight before sliding to 262 following the announcement of the MNB-ECB agreement, then softened again to around 267 at the beginning of trade in Europe.

Traders said the real problem is not the spot rate, which only reflects irregularities on the rate market. They say that since euro liquidity has practically disappeared from Hungary's banking system, banks would pay any price for euro loans. A sign of this is the swap tender, which remained unsuccessful at the MNB's defined price. It is unclear how the tender will go on Thursday when the market sets the prices.

Dealers say that government-bond yields are extremely high at around 13% for medium-term bonds and 11.85% for long-term bonds. Dealers add that the fact that the first buyers have appeared on the market is good news. (MTI – Econews)