EMERGING MARKETS-Hungarian bonds ride rating upgrade to lead gains
By Sujata Rao
LONDON, Sept 20 (Reuters) - Hungarian bonds made fresh gains on Tuesday, with short-dated yields hitting new record lows after a credit rating promotion to investment grade, while a weaker dollar saw most other emerging assets firm.
Markets are jittery before Wednesday's meetings of the Bank of Japan and the U.S. Federal Reserve and, while the latter is not expected to do much more than signal the timing of its next rate rise, the BOJ could cut interest rates further or announce measures to further steepen its bond yield curve.
In line with world stocks, emerging equities were flat just off one-week highs .MSCIEF though some currencies were able to eke out gains thanks to a slight pullback in the dollar .DXY .
Jakob Christensen, head of emerging markets research at Danske Bank in Copenhagen, saw big moves as unlikely after the Fed, barring a policy surprise, but said the BOJ outcome could go either way.
"If (the BOJ) cut interest rates, the yen might weaken and pressure Asian emerging markets but on the other hand it would also signal a more relaxed monetary stance which from a carry trade perspective makes it more interesting to borrow in yen and place it in high-yielding EM curencies," he said.
Emerging market investors were watching central bank meetings due later, with Hungary in immediate focus.
The central bank in Budapest is seen holding interest rates at 0.9 percent but capping the volume of money investable in short-dated three-month deposits to stimulate bank lending.
The forint was flat against the euro, holding off the 6-1/2-month highs hit after S&P Global's move on Friday to restore Hungary's sovereign rating back to investment grade EURHUF= .
Budapest stocks pulled off 9-year highs hit on Monday .BUX but bonds extended gains, with three- HU5YT=RR , and five-year yields HU5YT=RR , slipping to new record lows around at 1.22 percent and 1.77 percent. Ten-year yields hit six-week lows around 2.78 percent HU10YT=RR , down 5 bps on the day.
Yields across the curve have fallen in recent days, with the three-year segment falling 26 bps since Sept 15, while five and 10-year yields are down around 20 bps.
JPMorgan (NYSE: JPM ) said the rating upgrade could bring flows of $1-1.5 billion to local bonds, but added monetary easing did not appear warranted. The rise in wage and unit labour costs could push core inflation to 3 percent by end-2017, the bank added.
It advised staying underweight Hungarian bonds and overweight Poland and Romania "given the higher carry offered in those markets".
Nigeria's central bank is also due to hold a meeting at 1430 GMT and is facing pressure to loosen monetary policy, with Finance Minister Kemi Adeosun calling for a rate cut to stimulate the moribund economy.
Economists polled by Reuters expect rates to be held at 14 percent even though the economy is expected to contract as inflation is running at over 17 percent on an annual basis.
The South African rand ZAR= rose 0.7 percent to a one-week high against the dollar boosted also by some calming in local political tensions and Moody's comments that the probability of a rating downgrade to junk was now less than 50 percent GRAPHIC on emerging market FX performance 2016, see http://link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2016, see http://link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2016, see http://link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2016, see http://link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see CEE/
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB ) Emerging Markets Prices from Reuters
Equities
Latest
Net Chg % Chg % Chg
on year
Morgan Stanley (NYSE: MS )
Emrg Mkt Indx .MSCIEF
897.38
-0.30 -0.03 +13.00
Czech Rep
864.75
+2.92 +0.34 -9.58
Poland
1743.72
-6.06 -0.35 -6.21
Hungary
28414.39 -150.15 -0.53 +18.79
Romania
6978.77
+8.82 +0.13 -0.36
Greece
558.22
+0.75 +0.13 -11.58
Russia
958.40 -11.35 -1.17 +26.60
South Africa
.JTOPI 45132.81 -363.40 -0.80 -1.45
Turkey
.XU100 77170.34 -500.41 -0.64 +7.59
China
.SSEC
3023.30
-2.75 -0.09 -14.58
India
.BSESN 28526.62 -107.88 -0.38 +9.22
Currencies
Latest
Prev
Local
Local
close currency currency
% change % change
in 2016
Czech Rep
EURCZK=
27.00
27.02 +0.06
-0.02
Poland
EURPLN=
4.30
4.30 +0.02
-0.95
Hungary
EURHUF= 308.82
308.44 -0.12
+1.88
Romania
EURRON=
4.45
4.45 -0.12
+1.52
Serbia
EURRSD= 123.05
123.11 +0.05
-1.28
Russia
64.91
64.60 -0.49 +12.38
Kazakhstan
KZT=
339.33
338.65 -0.20
+0.34
Ukraine
25.85
25.73 -0.46
-7.34
South Africa ZAR=
13.91
14.00 +0.64 +11.15
Kenya
KES=
101.15
101.20 +0.05
+1.04
Israel
ILS=
3.77
3.77 -0.02
+3.08
Turkey
2.98
2.97 -0.08
-2.04
China
CNY=
6.67
6.67 -0.07
-2.66
India
INR=
67.04
66.97 -0.10
-1.25
Brazil
3.27
3.27 +0.09 +21.10
Mexico
19.64
19.68 +0.22 -12.56
Debt
Index Strip Spd Chg %Rtn Index
Sov'gn Debt 11EML EMBIG 368
0
.07
761.40
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