Bloomberg News

Forint Bond Yields Rise as S&P Cuts Hungary Further Into Junk

November 26, 2012

Hungary’s bond yields rose to the highest in almost a week after Hungary’s credit rating was lowered to two steps below investment grade by Standard & Poor’s.

Yields on the government’s benchmark 5-year bonds rose nine basis points, or 0.09 percentage point, to 6.47 percent by 9:42 a.m. in Budapest. The currency of Hungary, the European Union’s most indebted eastern member, gained 0.1 percent to 282.04 per euro, after dropping 1 percent in the wake of the downgrade on Nov. 23, the biggest slump this month.

The country’s long-term foreign- and local-currency sovereign ratings were reduced one level to BB, S&P said in a statement late on Nov. 23. It cited “unorthodox” tax policies pursued by Prime Minister Viktor Orban’s government for eroding economic-growth prospects. The grade, on par with Portugal and Turkey, has a stable outlook, said S&P.

“The country is moving further and further away from the prospect of returning to the group of reliable investment destinations,” Zoltan Reczey and Gergely Palffy, analysts at Buda-Cash Brokerhaz Zrt., wrote in a research report today, adding that the downgrade may be negative for Hungarian bonds and equities.

OTP Bank Nyrt. (OTP), Hungary’s largest lender, was little changed at 3,930 forint after falling as much as 1.4 percent at the open. The BUX Index gained 0.3 percent.

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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