Bloomberg News

Hungary Forint Falls to 2 1/2-Year Low on Europe, Debt Concern

October 04, 2011

Oct. 4 (Bloomberg) -- The forint weakened for a fifth day against the euro to its lowest since April 2009 and Hungary’s credit risk rose on concern the European credit crisis will worsen, hampering government efforts to reduce its debt.

The forint fell as much as 1.1 percent to 300.15 per euro and depreciated 1 percent by 5:45 p.m. in Budapest, extending losses in the second half of the year to 11 percent, the most among more than 20 emerging-market currencies tracked by Bloomberg. The cost of insuring against a default by Hungary climbed to the highest since March 2009.

European finance ministers meeting yesterday considered “technical revisions” to a July deal for a second Greek bailout, fueling concern bondholders may have to take bigger losses on the nation’s debt. Borrowing costs for Hungary, the most-indebted eastern member of the European Union, rose to the highest in two years at a Treasury-bill auction today.

“The euro area remains at the center of worries after leaders didn’t make much progress in controlling the worsening debt crisis at yesterday’s summit,” Zoltan Reczey and Zsigmond Gelencser, analysts at Buda-Cash Brokerhaz Zrt. in Budapest, wrote in a research report today.

Hungary today sold a planned 30 billion forint ($133 million) of three-month Treasury bills today at an average yield of 6.04 percent, the highest cost for that maturity since October 2009, according to the state’s Debt Management Agency.

Default Risk

Five-year credit-default swaps jumped 25 basis points to 575, 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, said yesterday it wants to restructure the 180 billion forint of debt amassed by the nation’s 19 counties.

The restructuring may be classified as a default which “might carry a negative message for creditors and credit rating” companies when assessing Hungary’s sovereign debt, Janos Samu, an analyst at Concorde Securities in Budapest, wrote in a note to clients today.

Hungary, which is rated at the lowest investment-grade ranking by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, had public debt of 80 percent of gross domestic product at the end of 2010. Moody’s said last week that Hungary’s passage in September of a law allowing repayment of foreign-currency mortgages at fixed exchange rates, with banks absorbing losses, set “a worrying precedent” and is “credit negative.”

“These measures are of course an additional negative for the forint in a world that is already plagued by risk aversion hitting emerging markets in general,” Elisabeth Andreew, a Copenhagen-based strategist at Nordea Bank AB, wrote in an e- mail to clients today.

Hungary’s BUX index rose 0.4 percent to 15,574.59, rebounding from a 2.4 percent decline, after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank stands ready to take additional steps to boost growth.

--With assistance from Edith Balazs in Budapest. Editors: Stephen Kirkland, Wojciech Moskwa

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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