News
BG: Neutral – Govt auctions full amount of 10?Y notes: yield – 5.42%, bid/cover – 1.68 (p2)
HU: Neutral – NBH leaves policy rate unchanged at 6% (p2)
LN: Neutral – 1Q C/A reading comes in at LTL-0.1bn (0.5% of 1Q GDP) (p2)
RO: Neutral – Govt auctions RON 1.4bn of 1Y t-bills: yield – 6.65%, bid/cover – 2.14 (p3)
Today’s Events
ES: June Consumer Confidence / CR: May Unemployment / HU: 3M t-bill auction / LN: May IP / LN: May PPI / SRB: RSD 20bn Fixed Coupon Bonds auction (re-opening of 30.03.2011 issue) / SL: May PPI
EEMEA Markets
FX liquidity shortage evident in the Hungarian banking sector: Although the main event of the day was the NBH MPC meeting where the council left rates unchanged at 6.0%, we believe the decision by the NBH to allocate the maximum EUR 400mn of 3M floating rate EUR/HUF swaps at its weekly tender on Monday was more important, as demand for FX liquidity jumped to a EUR 624mn. This represents the highest demand since the facility was introduced in March 2009, and surpasses the available maximum for the first time since 27 December 2010, when bids totalled EUR 410m. In the same vein, we note that FX swap implied HUF yields have moved significantly lower in the last couple of days underlying the growing FX liquidity shortage in the banking sector. Although the Hungarian banking sector is not directly linked to the Greek banking sector, yesterday’s events suggest that in the case of increasing funding tensions this banking sector could come under pressure. The trade implication of this is that going short in HUF is getting cheaper (which should be supportive of our long PLN-HUF view for a longer period). Also, as the gap between short dated t-bills and FX swap implied yields widens FX hedged local currency instruments are getting cheaper. The spread between the 3M t-bill and 3M implied yields is now around +160bp.
FX liquidity does not seem too bad in Romania: It is also interesting to note that although the EUR/RON moved sharply higher, the implied RON yields in the FX forward market have started to move higher in the last couple of days. The 3M implied rate is about 30bp above the level from one week ago at around 4.0% and 40bp below the HUF implied rates. This suggests that FX liquidity is not that bad in the Romanian banking sector and the sell-off might be more related to positioning as opposed to actual liquidity pulling activity of some parent banks. We will monitor the FX swap closely in the coming days to see if this situation sustains.
Gyula Toth
UniCredit Research