Bloomberg News

Hungarian Default Swaps Jump Most in 4 Months as Forint Falls

May 14, 2012

Hungary’s cost of insuring against default on government debt rose the most in more than four months as the forint and stocks retreated on concern Europe’s debt crisis will escalate.

The country’s five-year credit-default swaps rose 27 basis points to 551 basis point, the biggest jump on a closing basis since Jan. 4 by 5:06 p.m. in Budapest, according to data compiled by Bloomberg. The currency of the European Union’s most indebted eastern member, depreciated 1.2 percent to 292.98 against the euro.

Demand for riskier assets dropped as an inconclusive election in Greece left political parties struggling to form a government and speculation increased that the nation might fail to implement austerity measures tied to its bailout package. Hungary hasn’t started talks on an aid deal of its own almost six months after requesting the assistance from the International Monetary Fund.

“The Greek political situation and the resulting wave of risk aversion dominates the exchange rate” of the forint, Levente Blaho and Adam Keszeg, analysts at Raiffeisen Bank International AG (RBI), wrote in a research report today. The forint probably won’t strengthen beyond 290 per euro until Greece’s “acute” problems are solved, the Raiffeisen analysts added.

The benchmark BUX stock index slid 1.8 percent to 17,009.32 as OTP Bank Nyrt., Hungary’s largest lender, slumped 2.5 percent. Hungary’s benchmark 10-year government bonds weakened, lifting yields seven basis points to 8.339 percent.

Hungarian monetary policy must be “extremely cautious” during bailout talks with the IMF, Ferenc Karvalits, vice president of the central bank, said in e-mailed answers to questions from Bloomberg News.

The Magyar Nemzeti Bank last month left the EU’s highest benchmark interest rate at 7 percent for a fourth month, citing delays in the bailout talks and planned tax increases that may boost inflation.

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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