Bloomberg News

Hungarian Bonds Gain as IMF Plan Lowers Risk, Spurs Bill Sale

November 23, 2011

Nov. 22 (Bloomberg) -- Hungarian bonds gained and the cost of credit-default swaps declined as speculation that the European Union’s most-indebted eastern member will win support from the International Monetary Fund reassured investors.

Rising bonds pushed the yield on benchmark 2017 notes down four basis points, or 0.04 percentage point, to 8.275 percent by 5:30 p.m. in Budapest. The yield has been declining from 8.736 percent, a two-year high, reached a week ago.

Hungary’s request last week for a “precautionary” credit line from the IMF has helped the forint rebound from its record- low against the euro. The country sold 40 billion forint ($176 million) of three-month Treasury bills today. Investors bid for three-times the amount, cutting the yield from a week ago.

“The IMF news definitely helped strengthen the forint, reduce expectations for a rate increase and raise demand for debt of shorter maturities,” Sandor Jobbagy, a Budapest-based economist at the CIB Bank Zrt. unit of Intesa Sanpaolo SpA, said in a phone interview today after the three-month bill auction.

The forint last traded little changed at 306.97 per euro, up 2.8 percent from a week ago. Credit-default swaps insuring Hungarian debt for five years fell to 588 basis points from 594 yesterday. The contracts, which drop as investor perceptions of creditworthiness improve, traded at more than 610 points a week ago, according to CMA data compiled by Bloomberg.

‘Significant Chunk’

Hungary unexpectedly reversed its policy of shunning the IMF after Standard & Poor’s and Fitch Ratings threatened to cut the country’s rating to non-investment grade and the forint slid to a record, fueling expectations the central bank will raise borrowing costs to protect the currency.

“The deal with the IMF would remove a significant chunk of the risk premium of the Hungarian assets,” strategists at BNP Paribas SA led by London-based Bartosz Pawlowski wrote in a report to clients today. “Hungary will need at least 4 billion euros in order to repay maturing debt next year, most of it -- 2.5 billion euros -- owed to the IMF.”

While Hungary doesn’t plan to tap IMF funds, it seeks the credit line to reassure investors and help the country finance itself in the market, Economy Minister Gyorgy Matolcsy told lawmakers yesterday. The government will not change its economic policy, he said on M1 television a day earlier.

Matolcsy’s “comments suggest strong desire to avoid any strict conditionality,” currency strategists at New York-based Brown Brothers Harriman & Co. wrote in an e-mail to clients today. “We do not think the IMF will agree to this and so negotiations over a program are likely to remain difficult. Either way, we think an IMF deal would not prevent downgrade.”

--Editors: Linda Shen, Gavin Serkin

To contact the reporters on this story: Krystof Chamonikolas in Prague at; Zoltan Simon in Budapest at

To contact the editor responsible for this story: Gavin Serkin at

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