Hungary’s bond yields rose to the highest level in six months and the forint weakened as interest-rate derivatives signaled a 10-month long monetary loosening cycle may be approaching its end.
Yields on the government’s benchmark 10-year bonds rose 31 basis points, or 0.31 percentage point, to 6.87 percent, the highest since Dec. 5. The forint weakened, extending its depreciation in the past five days to 3.2 percent, the worst performance among more than 20 emerging-market currencies tracked by Bloomberg. Forward-rate agreements indicated no rate cuts in three months and showed the biggest prospect of a rate increase within six months since January 2012.
The Magyar Nemzeti Bank will probably cut its benchmark rate by 25 basis points to a record 4.25 percent tomorrow, according to all 25 analysts polled by Bloomberg. Emerging-market assets tumbled last week after Fed Chairman Ben S. Bernanke said the U.S. central bank may taper monthly bond purchases later this year and halt them around mid-2014 as long as the world’s biggest economy performs in line with its projections.
Hungary’s FRAs used to wager on three-month interest rates in three months from now traded at 4.46 percent, according to data compiled by Bloomberg. That is eight basis points above the Budapest Interbank Offered Rate, showing the first time in year that traders priced out a rate cut for that time period. The spread between the six-month FRA and the BUBOR widened to 41 basis points.
The cost of insuring against default on Hungary’s debt with credit-default swaps rose 10 basis points to 365, the highest since April.
The forint weakened 0.3 percent to 300.4 per euro by 1:54 p.m. in Budapest.
“Although another 25 basis point rate cut can be seen as certain, it is a question if the central bank will send a signal on the rate path after the comments from the Fed and given the rising bond yields and huge widening in the CDS spread,” Imre Kerekgyarto and Karoly Bamli, Budapest-based currency traders at Commerzbank AG, wrote in an e-mail today.
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