Bloomberg News

Forint Drops, Hungary Bond Risk Reaches 2-Year High on Debt Plan

October 03, 2011

Oct. 3 (Bloomberg) -- The forint weakened for a fourth day and the cost of protecting against default on Hungarian bonds rose to the highest in more than two years amid government plans to restructure $819 million in local county debt.

Hungary’s currency depreciated 1 percent to 296.3 per euro, the weakest since 2009, by 4:42 p.m. in Budapest. The country’s five-year credit-default swaps jumped more than 17 basis points to 549.3, the highest since March 2009, according to data provider CMA. Credit swaps rise as perceptions of creditworthiness worsen.

Hungary, the first European Union country to get a bailout led by the International Monetary Fund in 2008, wants to restructure the 180 billion forint ($819 million) of debt amassed by the nation’s 19 counties, Prime Minister Viktor Orban said today. Emerging-market stocks extended losses after completing the worst quarterly drop since 2008 amid mounting concern there will be a world economic slowdown and European leaders prepared to weigh the risk of a Greek default.

“Today’s announcement from the prime minister on the takeover and possible restructuring of counties can be seen as negative news,” Zoltan Arokszallasi, an economist at Erste Group Bank AG in Budapest, in a research report today. The deteriorating global sentiment also put pressure on the forint, he said.

Hungary’s government bonds maturing in 2017 weakened for a fourth day, lifting the yield 13 basis points, or 0.13 percentage point, to 7.91 percent, the highest since January.

The country needs a precautionary standby loan agreement with the IMF to defend against contagion from a potential worsening of the euro crisis, Bank of America Corp. economist Raffaella Tenconi said in a research report today.

“There isn’t enough ammunition left to protect the economy against an unfavorable global backdrop if the eurozone states do not take immediate action to stabilize the crisis,” Tenconi wrote.

--Editors: Stephen Kirkland, Ana Monteiro

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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