At its first interest rate swap (IRS) tender of 2018, the National Bank of Hungary’soffered a lower amount of 5 year and 1-year IRS than the market had expected. Thiscaused a spike in longer-dated bond and swap rates. This follows a rebound in EURfront-end rates earlier last week amid a repricing of 1y1y EONIA after hawkish ECBcomments.
We think that the rates market is at risk of moving ahead of the FX market, whereEURHUF has been relatively stable.
In our view, the NBH’s reaction function considers the overall tightness of financialconditions including the FX rate. Last year, when the NBH decided to extend itseasing programme to longer-dated securities, it argued that the programme’s aim wasto offset overall tight monetary conditions caused by HUF appreciation. We think thisapproach will still hold going forward.
Trade: Long 10mio EURHUF at 309.20, targeting 315, stop loss 307.50. Receive 5y HUFIRS at 102bp, targeting 80bp, with stop loss 115bp.