Bond investors seem to be a bit disappointed

HUNGARY - In Brief 24 Jan 2018 by Istvan Racz

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Bloomberg wrote this morning on the most recent correction that took place on the Hungarian government bond market over the past few days:https://www.bloomberg.com/news/articles/2018-01-24...In fact, the HUF bond market started this year with a great deal of optimism, with the 5-year government benchmark at 0.98% on January 8 and the 10-year benchmark at 1.9% on January 5, both unprecedented historical lows. From those levels, 5 and 10-year yields have risen 15 bps and 24 bps, respectively, a relatively major correction. What happened in the meantime was obviously the first auction held for the MNB's new interest rate swap instrument (MIRS). In hindsight, investors appear to be a bit disappointed about the MNB's lack of ambition to achieve some kind of a big (or at least bigger) bang in terms of lowering long-term yields. In the face of HUF 573bn demand, the Bank sold only HUF 75bn of 5 and 10-year swaps, with average fixed interest rates of 0.76% and 1.46%, respectively. The original offer was a total of HUF 50bn only, which was eventually raised by 50%.We are most certainly not the ones to tell if investor expectations were excessive or the MNB's communication was misleading. But we would warn against anyone believing that after this cautious start, the MNB should be expected to become markedly more aggressive on the next few occasions. No, the MNB always proceeds in small steps, as a matter of a basic style. They have stated they would come back with auctions held in every two weeks, and that they are aiming to sell a total of HUF 300bn of MIRS in Q1 2018, and they will most likely stick to that goal, with minimum fixed rates that are rather similar to the ones appl...