Central European Daily

While Hungarian bonds were facing a negative correction as the bond yield curve also moved upward between 20 and 40bp (although the minimum levels looked extremely low), it seems that the rally might be reactivated after yesterday’s FOMC meeting. Recall that the Fed showed no signal whatsoever it wants to change its policy of very gradually grinding towards a first tightening of policy. That gives markets enough time to ignore the possibility of tighter policy for now. But in case of Hungarian government bonds there domestic factors in play too. Just recently, one of the vice-governors of NBH highlighted that rate cut cycle can be continued in June. Although the council is divided (7 members were voted again on 10bp cut and 2 members on hold in May) it is quite clear that the 7 members will vote together until NBH’s governor, Mr. Matolcsy wants to cut the base rate. It was interesting that the two members, who didn’t want to moderate the key rate highlighted that the continuation of rate cut cycle is getting more dangerous. In this respect it is worth noting that the HUF underperformed regional currencies, which still suggests that the decreasing risk premium Hungary makes the currency more sensitive on external shocks.