Forint hits 4-week low on C/A, bond rally loses steam

BUDAPEST: The forint hit a four-week low against the euro on Monday as weak Hungarian current account figures for the last quarter of 2018 added to worries over economic growth.

A surprise improvement in Germany's Ifo business morale reduced recession fears sparked by Friday's German manufacturing data in the European Union's biggest economy and a main market of Central Europe's exports.

But Hungary's quarterly current account deficit widened more than expected, reducing the full-year surplus to 640 million euros in 2018, down from 3.45 billion euros in 2017 and 7.04 billion euros in 2016.

"This is ruining a big forint-strengthening factor," Erste analysts said in a note.

The forint traded at 316.95 against the euro at 1431 GMT, weaker by 0.2 percent, while Central Europe's most liquid unit, the zloty firmed a shade to 4.296.

Hungarian government bond yields took a breather ahead of a meeting of the National Bank of Hungary on Tuesday.

The 10-year benchmark paper traded at 2.92 percent.

The yield jumped early this month as the underlying paper was replaced with one with a longer maturity, but it has plunged about 30 basis points since the middle of March.

It tracked a rally in bond prices in developed markets as US Treasuries priced out a future Federal Reserve rate rise.

Along with recent weak euro zone economic data, that also helped Germany's 10-year Bund yield decline below zero.

Hungary's corresponding bonds narrowed the spread with Bunds.

Poland's 10-year bond yield, meanwhile widened their spread with Bunds as the government there, ahead of European Parliament and national elections, prepares for fiscal stimulus.

Hungary also increases spending on family benefits, but unlike the Polish central bank, Hungarian rate-setters are seen to start to tighten policy this year to fight inflation.

Long-term Hungarian bonds got support from expectations for a rise in the NBH's -0.15 percent overnight deposit rate at the central bank's meeting (NBH) on Tuesday.

But the worries over global growth and expectations for low interest rates to stay longer in the world may discourage monetary tightening in Budapest as well, traders said.

"If (the NBH) does nothing this time, that could mean some upset in credibility," one Budapest-based fixed income trader said, adding that bond yields would still not rise much.

"Core markets are kind of crazy, Bund yields are even in the negative... The Fed and the ECB have arranged it for the NBH that they may do nothing," the trader said, adding that the NBH's weekly fx swap tender did not provide any guidance.

Elsewhere, Romania sold a more than planned amount of 2031-expiry bonds.