Bloomberg News

Hungary’s Forint Bonds at Risk From Aid Threat, UniCredit Says

February 24, 2012

Feb. 23 (Bloomberg) -- Hungary’s forint-denominated bonds may weaken on concern the government will struggle to restart talks on an international bailout, according to UniCredit SpA.

The European Union’s most-indebted eastern member has “significant financing needs” of 5 billion euros ($6.6 billion) for this year, Gyula Toth, a Vienna-based strategist at UniCredit, wrote in a research report today. The country will offer 42 billion forint ($193 million) in debt maturing in 2015, 2017 and 2028 at a biweekly sale today, according to data from the Debt Management Agency on Bloomberg.

The European Commission will propose a suspension of 495 million euros in regional development subsidies, saying Hungary failed to reduce its budget deficit, it said in an e-mailed statement yesterday. The move increased pressure on Prime Minister Viktor Orban, who has been trying to revive talks with the European Union and the International Monetary Fund on a bailout since the start of the year.

“So far the market has not responded to the potentially significant additional delay in the IMF/EU talks but we see room for market weakness,” UniCredit’s Toth said. “In terms of which asset class is more vulnerable, we are mostly worried about local currency bonds.”

The yield on existing five-year notes dropped one basis points, or 0.01 percentage point, to 8.726 percent by 10:17 a.m. in Budapest, after rising 36 basis points in the past two days. The forint appreciated 0.4 percent to 288.1 per euro.

Hungary will use “all tools” to meet its budget deficit target of 2.5 percent of gross domestic product this year, the Economy Ministry said in a statement yesterday. The measures will help avoid the suspension of EU funds, Zoltan Csefalvay, state secretary at the ministry, told reporters yesterday.

“It would seem that at least the Hungarian government is taking the warning seriously,” Thu Lan Nguyen, a Frankfurt- based economist at Commerzbank AG, wrote in a research report today. “Only if it let action follow its words will the all clear be sounded for the forint. Without concrete measures we continue to see potential for a setback for the Hungarian currency.”

--Editors: Linda Shen, Ash Kumar

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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