Bloomberg News

Hungary Bond Yields Fall to 7-Year Low on Rate-Cut Speculation

January 03, 2013

Hungary’s government bond yields fell to the lowest in more than seven years on speculation slowing inflation and rising risk appetite will allow the central bank to cut interest rates further this year.

Yields on 10-year notes fell three basis points, or 0.03 percentage points, to 6 percent by 10:37 a.m. in Budapest, the lowest since September 2005. The forint weakened 0.1 percent to 291.32 per euro.

The Magyar Nemzeti Bank cut its benchmark rate by a cumulative 1.25 percentage points in five monthly meetings last year to 5.75 percent. Traders in interest rate derivatives are pricing in the same amount of easing for 2013. The rate’s “equilibrium” level is 4.5 to 5 percent, policy maker Ferenc Gerhardt said in a Nov. 5 interview.

“We still see cuts progressing meeting by meeting” of the rate-setting Monetary Council, Peter Attard Montalto, a London- based strategist at Nomura International Plc, wrote in a research report today.

The central bank last month lowered its inflation forecast for 2013 to an average 3.5 percent, from a projection of 5.8 percent in September, as a result of the government cutting household energy prices by 10 percent from January and delaying a rise in excise taxes.

The Cabinet plans two further round of price cuts for heating, natural gas and electricity, Magyar Hirlap reported today. The Development Ministry declined to comment in an e- mailed response to questions from Bloomberg News.

“The central bank will probably continue rate cuts, which may further push down the shorter end of the yield curve,” Akos Kuti, a Budapest-based analyst at broker Equilor Befektetesi Zrt., wrote in an e-mailed report today.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net


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