Forint firms, Hungarian yields rise as markets await fresh rate hike



By Krisztina Than

BUDAPEST, June 28 (Reuters) - The forint EURHUF= regained some ground on Tuesday while government bond yields edged higher ahead of a Hungarian central bank meeting where it is expected to hike interest rates further in a bid to curb surging inflation.

The forint hit a record low at 404.50 versus the euro on Monday, decoupling from its peers in Central Europe and falling about 8% this year, as investors are increasingly concerned about a delay in talks between Hungary and Brussels about the release of billions of euros of EU recovery funds.

Other factors ranging from Hungary's high budget deficit, relatively high public debt level in the region, and a recent move by the government to impose hefty windfall taxes on banks and a raft of companies also weighed on investor sentiment.

On Tuesday, the forint gained 0.7% to 400 versus the euro.

"The biggest risk is the ongoing debate about EU funds, this is what's been priced in this uncertainty," a fixed income trader in Budapest said, adding that Hungary's risk profile has worsened relative to Poland.

The yield on Hungary's 10-year government bond rose about 3-4 basis points to 8.34% on Tuesday after a jump of around 40 bps on Monday according to the debt agency HUBONDFIX page. The Polish 10-year bond traded at 7.4%, up 10 basis points, extending its rise from Monday.

Traders said Hungarian and Polish bonds showed great volatility and yields were moving upwards now after a big rally last week, tracking core market yields.

"The Polish debt market is on a swing (...). Two weeks ago (the yield of 10-year treasuries) was above 8%, last week it fell to 6.9%, so the volatility is huge," Mateusz Sutowicz, a financial market analyst at Bank Millennium said.

"Volatility remains high ... due to changing expectations regarding the target level of interest rates in Poland, and those are influenced by fears of a global recession."

Hungarian central bank policymakers are expected to stick to a 50-basis-point pace of tightening on Tuesday but some analysts in a Reuters poll pencilled in a bigger increase in the base rate which stands at 5.9%.

"A 50-basis-point hike will not shore up markets," a Hungarian fixed income trader said, adding that if the bank opts for the smaller increase, the forint will weaken further.

"The significant weakening of the forint may require a larger (base) rate hike, with a 100 basis point move being realistic," brokerage Equilor said in a note. It added that the effective rate -- the one-week deposit rate -- was currently at 7.25%, and could rise further on Thursday.

Elsewhere in central Europe the Czech crown EURCZK= was flat while the Polish zloty EURPLN= was also steady.

CEE

SNAPSHO AT

MARKETS T

0938

CET

CURRENC

IES

Latest Previou Daily

Change

s

bid

close

change in 2022 EURCZK Czech

<EURCZK 24.7350 24.7280 -0.03% +0.55% =

crown

=>

EURHUF Hungary <EURHUF 400.050 402.750 +0.67% -7.66% =

forint

=>

0

0

EURPLN Polish

<EURPLN 4.6855 4.6875 +0.04% -2.02% =

zloty

=>

EURHRK Croatian <EURHRK 7.5280 7.5305 +0.03% -0.14% =

kuna

=>

EURRSD Serbian <EURRSD 117.380 117.580 +0.17% +0.17% =

dinar

=>

0

0

Note:

calculated from

1800

daily

CET

change

Latest Previou Daily

Change

s

close

change in 2022 .PX

Prague

.PX

1284.08 1260.11 +1.90% #VALUE!

00

.BUX

Budapest .BUX

39673.4 39501.8 +0.43% -21.78%

6

6

.WIG20 Warsaw

<.WIG20 1737.23 1713.18 +1.40% -23.37%

>

.BETI Buchares .BETI 12578.9 12537.4 +0.33% -3.69%

t

4

4

.SBITO Ljubljan <.SBITO 1140.01 1133.45 +0.58% -9.20% P

a

P>

.CRBEX Zagreb

<.CRBEX 2024.89 2029.17 -0.21% -2.62%

>

.BELEX Belgrade <.BELEX 836.43 836.43 +0.00% +1.91% 15

15>

.SOFIX Sofia

<.SOFIX 610.90 613.67 -0.45% -3.90%

>

Yield

Yield

Spread Daily

(bid)

change vs Bund change

in

Czech

spread

Republic

CZ2YT=

2-year <CZ2YT= 6.2650 0.0010 +529bp -10bps RR

RR>

s CZ5YT=

5-year <CZ5YT= 5.7500 -0.0060 +437bp -10bps RR

RR>

s CZ10YT

<CZ10YT 5.2520 0.0000 +363bp

-8bps =RR

10-year =RR>

s

Poland

PL2YT=

2-year <PL2YT= 8.0350 0.1400 +706bp

+4bps RR

RR>

s PL5YT=

5-year <PL5YT= 7.8390 0.1500 +646bp

+6bps RR

RR>

s PL10YT

<PL10YT 7.4900 0.1830 +586bp +10bps =RR

10-year =RR>

s

FORWARD

3x6

6x9

9x12

3M

interba

nk

Czech

<CZKFRA

7.61

7.62

7.39

7.22

Rep

><PRIBO

R=>

Hungary <HUFFRA

9.64

10.14

10.15

7.73

><BUBOR

=>

Poland

<PLNFRA

8.18

8.40

8.38

7.00

><WIBOR

=>

Note:

are for ask

FRA

prices

quotes

********************************************

******************


Reporting by Krisztina Than, Additional reporting by Anna Wlodarczak-Semczuk. Editing by Carmel Crimmins

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