Bloomberg News

Hungary Bond Yields Jump to 2 1/2-Year High on Concern Over Aid

January 02, 2012

Jan. 2 (Bloomberg) -- Hungary’s 10-year bonds slumped, lifting the yield to the highest in 2 1/2 years, as new rules for the central bank fueled speculation the European Union’s most-indebted eastern member may fail to get international aid.

The yield on the 10-year notes rose 21 basis points, or 0.21 percentage point, to 10.11 percent, the highest since June 2009, according to generic prices compiled by Bloomberg. The forint appreciated 0.4 percent to 313.9 per euro by 4:03 p.m. in Budapest.

Lawmakers approved new central bank regulations on Dec. 30 that stripped its bank President Andras Simor of his right to name deputies, expanded the rate-setting Monetary Council and created a position for a third vice president. Work on the legislation prompted the International Monetary Fund and EU to break off talks last month.

“The prospect of a deal with the IMF looks more and more distant, so the risk attached to debt securities increases,” Andras Sovany, a Budapest-based fixed-income trader at ING Groep NV, wrote in an e-mailed response to questions from Bloomberg today. Trading volume was low with markets in the U.K. and U.S. closed for a holiday, Sovany added.

Hungary received its second sovereign-credit downgrade to junk in a month when Standard & Poor’s followed Moody’s Investors Service in taking the country out of its investment grade category on Dec. 21.

“The chance of a deal with the IMF and EU in January or February is getting smaller and smaller, the accord may get delayed,” Zoltan Arokszallasi, a Budapest-based fixed income analyst at Erste Group Bank AG, wrote in a research report today, citing the dispute over the central bank law approved last week.

--Editors: Ash Kumar, Stephen Kirkland

To contact the editor responsible for this story: Andras Gergely at agergely@bloomberg.net


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