Forint rebounds, Hungary's 10-year yield sets 4-month high

BUDAPEST: The forint gained on Monday, benefiting from increased appetite for risky assets, while a rise in inflation in Central Europe boosted Hungary's 10-year government bond yield to a 4-month high.

Money flowed from safe-haven currencies into riskier units globally, and the dollar also retreated, with its selling helping currencies in the European Union.

The forint bounced from Friday's 3-month low against its main Central European peer, the zloty.

It firmed a third of a percent versus the euro, approaching the 320 psychological line, after piercing its 200-day moving average at 320.90.

The forint has underperformed in recent weeks because rising consumer prices across the region brought Hungary's annual inflation near the top of the central bank's 2 to 4 percent target range by March.

The Polish rate, confirmed at 1.7 percent on Monday, is near the bottom of its 1.5 to 3.5 percent target range.

Hungary's central bank (NBH) raised one of its interest rates on March 26, but dropped its guidance of gradual monetary tightening, saying that its policy would hinge on data.

Hungarian construction output jumped by 48 percent in annual terms in February, according to figures released on Monday.

Along with a pick-up in industrial output and retail sales, the figures indicate that annual economic growth may have accelerated above 5 percent in the first quarter of the year, Takarekbank analyst Gergely Suppan said in a note.

The less hawkish central bank rhetoric and a rise in inflation and German Bund yields have pushed Hungary's 10-year yield higher by about 40 basis points in the past three weeks.

Foreign investors have reduced their forint-denominated government bond holding to a 4-week low.

Rising 3 basis points on Monday, the yield set a 4-month high. In the past days it rose more than corresponding Bunds, and its spread over the German paper was the highest in 5 months.

"German yields have increased, too, and last week's inflation figures had an impact (on Hungarian bonds) as well," one Budapest-based trader said.

Poland's corresponding yield dropped 2 basis points to 2.8785 percent, while the zloty firmed 0.1 percent 4.275 versus the euro, slightly off a 2-and-1/2-month high set earlier in the session.

Polish debt yields fell due to the announcement of an overhaul of pension funds which could lower the government's borrowing needs in years to come, but can increase government spending in the long run, Erste group analysts said in a note.