Fiscal policy may deter holding Romanian debt

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Central Banks ◽  
Bond Markets ◽  
Social Democrat ◽  
Content Type ◽  
East European ◽  
Central Eastern Europe ◽  
National Bank

Subject The outlook for Central-East European debt. Significance A flurry of hawkish commentary from the world’s leading central banks, in particular the ECB, which is preparing the ground for a withdrawal of monetary stimulus, has put significant strain on the domestic bond markets of Central-Eastern Europe (CEE). Under particular pressure are Romanian domestic bonds, because of the threat of fiscal slippages under the new Social Democrat (PSD)-led government, which are likely to force the National Bank of Romania (NBR) to hike interest rates more aggressively than its regional peers. Impacts Despite the central-bank-driven sell-off in global markets, negative-yielding bonds still account for one-fifth of global sovereign debt. Persistent concerns about a supply glut are keeping Brent crude below 50 dollars per barrel, with oil prices down by 14% since end-May. Emerging Market stocks are declining under pressure of hawkish rhetoric from central banks, but not Hungarian and Czech equities.

ECB's QE will buoy EM bond markets

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Developing Economies ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Content Type ◽  
Large Current

Subject Opposite forces are shaping investor sentiment towards EM assets. Significance Investor sentiment towards emerging market (EM) assets is being shaped by the conflicting forces of a strong dollar and the launch of a sovereign quantitative easing (QE) programme by the ECB. While the latter is likely to encourage investment into higher-yielding assets, such as EM debt, the former will keep the currencies of developing economies under strain, particularly those most sensitive to a rise in US interest rates due to heavier reliance on capital inflows to finance large current account deficits, such as Turkey and South Africa. Impacts EM bonds will benefit from ECB-related inflows, while the strength of the dollar will keep local currencies under strain. Higher-yielding EMs will benefit the most from the ECB's bond-buying scheme since they provide the greatest scope for 'carry trades'. The collapse in oil prices is forcing EM central banks to turn increasingly dovish, putting further strain on local currencies.

Foreign holdings of EM debt are a key global risk

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Central Banks ◽  
Foreign Investor ◽  
Bond Markets ◽  
Global Risk ◽  
Content Type ◽  
China And India ◽  
China’S Economy

Subject Risks surrounding increased foreign participation in EM bond markets. Significance The rise in the dollar in anticipation that the Federal Reserve (Fed) will start hiking interest rates next month is putting emerging market (EM) currencies under renewed strain. This stress is testing the resilience of EM bond markets, many of which, such as Malaysia and Indonesia, have high levels of foreign investor participation, or, like China and India, are seeking to attract more. Impacts Monetary policy divergence between the Fed and other leading central banks will put further upward pressure on the dollar. A strengthening dollar will extend oil's 6.6% price drop since November 3, undermining sentiment towards EMs. The composition of foreign holdings (institutional money versus flightier capital) will be key to gauging the vulnerability of EM debt. The largest source of vulnerability in EMs will remain the threat of a harder-than-expected landing for China's economy.

Normalisation threatens Emerging Europe’s bond markets

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Content Type ◽  
The Us ◽  
Asset Purchases ◽  
Investment Grade

Subject The risks to Emerging Europe’s bond markets from the removal of monetary stimulus. Significance The IMF has warned that the withdrawal of monetary stimulus by the US Federal Reserve (Fed) is likely to reduce capital inflows into emerging market (EM) economies. Emerging Europe is particularly vulnerable, thanks to the additional risks posed by the reduction of asset purchases by the ECB. Corporate bonds are most at risk because of the rapid compression in spreads on sub-investment grade debt, at their lowest levels since the financial crisis. Impacts Hawkish signals from central banks and US tax cuts are taking the benchmark ten-year US Treasury yield to its highest level since mid-March. However, dollar weakness will ease some of the strain on EM currencies and local bonds. With low core euro-area inflation reducing pressure to end QE, the ECB is unlikely to raise interest rates before 2019.

Monetary policy will remain loose in Central Europe

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Central Europe ◽  
Emerging Market ◽  
Central Banks ◽  
Currency Markets ◽  
Bond Yields ◽  
Content Type ◽  
Inflation Rates ◽  
National Bank

Subject Factors keeping monetary policy loose, despite stronger growth. Significance The Hungarian National Bank (MNB), one of the most dovish emerging market (EM) central banks, has cut its benchmark interest rate to a record low and called an end to its three-year-long monetary easing cycle. Hungary's inflation rate has only just turned positive after a period of deflation. The Czech National Bank (CNB) has been forced to intervene in the currency markets for the first time since 2013 in order to stem appreciation of the koruna, which is being buoyed by a stronger-than-expected growth pick-up. However, the prospect of subdued inflation should allow central banks in Central Europe (CE) to keep interest rates at current levels for a considerable period of time. Impacts The renewed decline in oil prices will exert downward pressure on inflation rates in many advanced and emerging economies. Exceptionally low CE local government bond yields could spark a sell-off if fallout from higher US interest rates is sharper than expected. The ECB's sovereign QE programme, to run at least until September 2016, should help mitigate any Fed-driven deterioration in CE sentiment.

US rates may rise but economic risks are rising faster

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Content Type ◽  
Political Risks ◽  
Bond Yield ◽  
Treasury Bond ◽  
The Face ◽  
Equity Index

Subject Global equity market trends. Significance The four main US stock market indices began March at record highs, including the benchmark S&P 500 index at 2,400. Driven by expectations of stimulative and pro-business policies under the new US administration, equity markets are flying in the face of signals from the Federal Reserve (Fed) that interest rates will rise three times this year. The probability of a hike at the Fed’s March 14-15 meeting has risen above 80% on growing price pressures and stronger economic data, buoyed by hawkish comments from several Fed governors, including those who were previously dovish. Impacts Despite the post-election US bond market sell-off, around one-third of the stock of euro-area sovereign debt remains negative yielding. The gap between the two-year US Treasury bond yield and its German equivalent has widened to a record, a sign of rising monetary divergence. The euro lost 2% against the dollar in February as political risks escalated in the euro-area, centred around the French election. The emerging market MSCI equity index is 8.6% up this year, after losing 4.5% from November 9 to end-2016, a sign of higher confidence.

Another rating upgrade is likely for Hungary soon

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Banking Sector ◽  
Credit Rating ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Central Banks ◽  
The Philippines ◽  
Content Type ◽  
Investment Grade

Significance Hungary thereby regains investment-grade status, albeit at the lowest level, from being downgraded to 'junk' because of doubts about the government's policies and the high public debt burden. Hungary's improving creditworthiness, underpinned by its current account surplus and deleveraging in the banking sector, contrasts with the increasing strain on Poland's credit rating. Political risk has become a major driver of investor sentiment towards emerging markets. Impacts Emerging market assets have become more vulnerable as investors reprice US monetary policy. Futures markets are now assigning a 51% probability to another rise in US interest rates at or before the Federal Reserve's July meeting. Central Europe's government bond markets are being supported by the persistently dovish monetary policy stance of its central banks. This contrasts with Latin America, where inflationary pressures are forcing many central banks to raise rates. Brazil, Turkey, Poland and the Philippines are among several countries where political uncertainty is a key determinant of asset prices.

ECB may spark rate rises in Central-Eastern Europe

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Eastern Europe ◽  
Emerging Market ◽  
Commodity Prices ◽  
Content Type ◽  
Market Sentiment ◽  
Central Eastern Europe ◽  
The Us ◽  
Equity Funds ◽  
Central Eastern

Significance Inflation rates are rising sharply across Central-Eastern Europe (CEE), mainly thanks to a recovery in commodity prices. A flurry of stronger-than-expected economic data is fuelling speculation in financial markets about the timing of increases in interest rates across the CEE region. Forward markets are already pricing in rate hikes in Romania and Poland within the next twelve months. Impacts Traders are now expecting the US Federal Reserve to achieve its goal of hiking interest rates three times this year. Emerging-market bond and equity funds are enjoying a surge in inflows, market sentiment having improved sharply after the US election. Mounting uncertainty regarding France’s presidential election next month is having a negligible impact on euro-area government bond markets.

ECB may ease pressure on Central-Eastern central banks

2018 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Eastern Europe ◽  
Central Banks ◽  
Fuel Price ◽  
Content Type ◽  
Central Eastern Europe ◽  
Central Eastern ◽  
European Monetary Policy ◽  
The Impact

Subject The impact of ECB and US Fed policy on monetary policy in Central-Eastern Europe. Significance The pressure on central banks in Central-Eastern Europe (CEE) to tighten monetary policy is easing slightly. The ECB offset its decision to terminate its quantitative easing (QE) programme in December with a pledge to refrain from raising interest rates until the second half of 2019. However, there is domestic pressure for tighter policy in some of the CEE region. This is most pronounced in Romania, where the National Bank (NBR) has already raised interest rates three times this year to counter a surge in inflation. Impacts The increasing divergence between US and European monetary policy is likely to push the euro down against the dollar. The dramatic escalation in tensions over global trade will keep German investor confidence at around its lowest level since 2012. OPEC and Russian attempts to reverse supply curbs and fears over the fallout from a full-blown trade war will curb further fuel price gains.

Hungarian forint is increasingly vulnerable to attack

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
External Environment ◽  
Central Banks ◽  
Content Type ◽  
China Trade ◽  
Bond Yield ◽  
The Us ◽  
National Bank ◽  
Global Growth

Subject Central banks’ policy dilemmas. Significance The National Bank of Hungary (MNB) remains extremely reluctant to raise interest rates despite increasing pressure on the forint. While growth in the euro-area is likely to remain weak this year, strengthening the case for rates to remain on hold, a more supportive external environment, underpinned by an easing of US-China trade tensions, would accentuate the policy dilemmas confronting Central Europe’s central banks, especially given rises in inflation. Impacts Germany’s still-negative ten-year bond yield has risen from record lows in September as markets become less pessimistic about global growth. Markets expect Hungarian monetary policy to remain very dovish, as the domestic twelve-month bond-yield’s end-October turn negative shows. The US S&P 500 index surged by nearly 30% last year and if US-China trade tensions ease slightly this should help it to maintain momentum.

Koruna is likeliest in Central Europe to rise further

2017 ◽  
Keyword(s):  
Growth Rate ◽  
Czech Republic ◽  
Developing Economies ◽  
Equity Markets ◽  
Central Banks ◽  
Bond Markets ◽  
The Czech Republic ◽  
Content Type ◽  
National Bank ◽  
Positive Sentiment

Subject The rally in Central Europe’s currencies despite the dovish stance of most of the region’s central banks. Significance The zloty has shot up against the euro this year; the koruna has strengthened sharply in response to the removal by the Czech National Bank (CNB) of its euro rate cap; even the forint has firmed by 2.2% against the euro since mid-December. Central Europe’s currencies are benefiting from reflationary pressures (particularly in the Czech Republic), inflows into equity and local bond markets, and positive sentiment towards developing economies. Impacts The 40-bp fall in 10-year US Treasury yields since mid-March will buoy world equity markets and encourage more exposure to EM ‘risk assets’. The 6% fall in the dollar index against a basket of currencies since early January is contributing to sharp euro and yen rises. Germany’s economy is performing strongly, in the first quarter enjoying its fastest growth rate in a year. This is underpinning expansion in Central Europe’s economies, particularly in Hungary and the Czech Republic.

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