Bloomberg News

Forint Trims 3rd Week of Gains as Hungary’s Bond Yields Advance

October 19, 2012

The forint pared a third week of gains and bond yields rose after Hungary’s Economy Ministry said its forecasts no longer assume benefits from an international aid deal and as demand for riskier assets dropped.

Hungary’s currency depreciated 0.4 percent to 278.75 per euro by 3:16 p.m. in Budapest, trimming its appreciation this week to 0.4 percent. Yields on the government’s benchmark 10- year bonds rose seven basis points, or 0.07 percentage point, to 6.67 percent. It rebounded from the lowest level reached yesterday since the security was first sold in January 2011.

The latest economic forecasts, submitted to the European Commission yesterday, no longer assume the potential beneficial economic impact of the government receiving aid from the International Monetary Fund, according to a report published by the ministry on its website. The Cabinet, which sees the budget deficit at 2.7 percent of gross domestic product this year and next, needs to ensure “safe attainment” of those targets with or without aid, it said.

“The wording indicates that the Cabinet does not expect a favorable impact from a possible” IMF/European Union deal anymore, Erste Group Bank AG said in an e-mailed report today.

Emerging-market stocks fell, paring the biggest weekly rally in more than a month, as disappointing earnings at Microsoft Corp. dragged down computer companies and a Chinese central bank adviser said stimulus will be limited.

The rally “was very much driven by the liquidity in the market and high yield countries like Hungary benefited more than others,” Daniel Lenz, Frankfurt-based chief emerging-markets strategist at DZ Bank AG, said in an e-mailed response to questions from Bloomberg.

“We are however skeptical about further upside potential for bonds and the forint,” Lenz said. Prime Minister Viktor Orban’s government, which requested IMF aid 11 months ago, will probably delay an aid agreement further, Lenz added.

“In a good market environment they might even come along without any deal without ending talks officially,” he said.

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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