UPDATE 1-CEE MARKETS-Forint plunges, yields surge as Hungary hammered in global gloom

(Recasts with new forint lows, jump in Hungarian government bond yields, Romanian central bank) By Alan Charlish and Krisztina Than WARSAW/BUDAPEST, July 6 (Reuters) – The forint plunged into new record lows on Wednesday while Hungarian government bond yields jumped, As the country’s worsened risk profile and worries over the future of EU fund flows added to global fears of a recession. The Polish zloty also softened slightly as investors ditched risky assets amid worries about a sharp economic slowdown as energy prices surge, central banks hike interest rates and business sentiment sentiments. But the forint was hammered, falling 2% on the day, and more than 11% so far this year, way underperforming the region. “Positive news about an agreement over EU funds and impacts of fiscal and monetary tightening domestic demand and improving the trade balance would be essential conditions to halt the underperformance of the HUF amidst the negative external risk environment,” Citigroup said in a note. It said the National Bank of Hungary (NBH) had limited room to support the currency by interventions on the FX spot market but could hike its 7.75% one-week deposit rate on Thursday, when the next tender is due. “As the NBH may try to keep some munition for the remainder of the month, we see slightly more chances for a 50bp hike tomorrow but based on the June MPC communication we would not rule out a 100bp hike either to defend the currency,” it said. The central bank has not replied to emailed Reuters questions. Hungarian bond yields surged 40-45 basis points at the short end and 20-25 basis points on longer-dated papers, with the 10-year yield hitting 8.7% on the secondary market, a trader said. “Compared to what goes on in the forint market, this is still fairly moderate in terms of yield moves, what we can see is that investors try to buy into the market occasionally, as they are searching for the peak,” the trader said, adding the market was waiting to see the next move from the central bank. The forint was 2% weaker against the euro at 416 as of 1413 GMT, sliding to fresh record lows during the day. According to the debt agency’s fixing HUBONDFIX the yield on the 5-year bonds jumped 44 bps to 9.08%, and the 3-year hit even higher at 9.19%. Meanwhile, markets have become more unsure about whether Poland will actually receive COVID-recovery funds from the European Union after criticism of reforms meant to unblock the cash in Brussels. The zloty was 0.3% weaker at 4.784, ahead of a rate-setting meeting on Thursday where analysts polled by Reuters expect the main rate to rise to 6.75% from 6.00%. The Romanian leu, tightly controlled by the central bank, was flat after a rate-setting meeting at which the Romanian central bank delivered its biggest interest rate hike in more than a decade, narrowing the borrowing cost gap with other states in the region as it its raised short-term inflation expectations. Policymakers lifted the benchmark rate ROINTR=ECI by one percentage point to 4.75%, above average market expectations, their seventh consecutive monthly hike since October. Markets in Prague were closed for a holiday. CEE SNAPSH AT 1559 CET MARKETS OT CURRENCIES Latest Previo Daily Change us bid close change in 2022 EURCZK Czech 0 0 % EURHUF Hungary 00 00 % EURPLN Polish EURRON Romania % % EURHRK Croatia % EURRSD Serbian 00 00 % Note: calculated from 1800 daily CET change Latest Previo Daily Change us close change in 2022 .PX Prague 1212.5 1212.5 +0.00 9 900 % .BUX Budapes 39169. 39256. -0.22% -22.77 t 34 26 % .WIG20 Warsaw <.WIG20 1661.3 1644.4 +1.02 -26.72 > 1 6% % BETI Buchare 12296. 12209. +0.71 -5.86% st 41 92 % .SBITO Ljublja <.SBITO 1118.0 1113.7 +0.38 -10.95 P na P>2 7% .CRBEX Zagreb <.CRBEX 1989.9 1998.7 -0.44% -4.30% <0 5. BELEX Belgrad <.BELEX 844.08 843.81 +0.03 +2.84 15 e 15> % % .SOFIX Sofia <.SOFIX 612.33 610.10 +0.37 -3.67% > % Yield Yield Spread Daily (bid) change vs change Bund in Czech Republic spread CZ2YT= ps s CZ5YT= ps s CZ10YT ps s Poland PL2YT= 0 ps PL5YT= ps s PL10YT 0 ps FORWARD 3×6 6×9 9×12 3M interb ank Czech Hungary Poland Note: are for ask FRA prices quotes ** ********************************************** **** ********** (Reporting by Alan Charlish in Warsaw and Anita Komuves in Budapest; Editing by Kim Coghill and Alison Williams)

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