Bloomberg News

Hungary Bond Yields Rise to Four-Week High on IMF Bailout Delays

February 27, 2012

Hungary’s government bonds dropped to the lowest in four weeks and the forint weakened on concern talks on a bailout from the European Union and International Monetary Fund will face delays.

The yield on benchmark 10-year bonds fell 10 basis points, or 0.10 percentage point, to 8.955 percent, the highest since Jan 31. The currency depreciated as much as 0.6 percent and traded 0.2 percent weaker at 291.8 per euro by 4:31 p.m. in Budapest.

Hungary didn’t receive any indication of dates in preliminary meetings preparing bailout negotiations, central bank President Andras Simor said in an interview with news website Origo published late yesterday. A European Commission plan to cut Hungary’s development subsidies is “credit negative” and “complicates” talks on an IMF-led loan, Moody’s Investors Service said in an e-mailed report today.

“The ‘pre-talks’ and then the actual talks could drag on for quite some time,” Martin Blum, Vienna-based co-head of asset management at Ithuba Capital, wrote in an e-mailed response to questions from Bloomberg today. “Hungarian assets are not attractive at current levels.”

Prime Minister Viktor Orban is trying to revive bailout talks with the EU and the IMF, which he requested in November after the forint fell to a record against the euro and as rating companies, including Moody’s, cut Hungary’s sovereign credit grade to junk. Talks broke down in December after the EU and the IMF said a new law may undermine central bank independence.

“Risks of negotiations dragging on longer than expected are skewed to the downside,” Mai Doan, a London-based economist at Bank of America Corp., wrote in a research report today. “We remain cautious for now.”

The commission, the EU’s executive arm, proposed on Feb. 22 to suspend 495 million euros ($665 million) in development subsidies to press Hungary to narrow its budget deficit.

The cost of insuring against default on Hungary’s debt with credit-default swaps rose six basis points to 518, according to data provider CMA.

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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