Templeton Likes Hungarian Bonds as IMF Aid Dispute ‘Trivial’

Franklin Templeton Investments, the biggest institutional holder of Hungarian government debt, is upbeat on its investment as it considers remaining disputes obstructing the government’s bailout as “surface issues.”

“The issues that are actually at stake that are causing friction between European Union, the International Monetary Fund and the Hungarian government are really trivial,” Michael Hasenstab, the manager of Franklin’s U.S.-based $61 billion Templeton Global Bond Fund (TPINX), told reporters in Singapore today. “We like those with good long-term fundamentals,” and “We like those which everyone hates, and Hungary fits that bill,” he said.

Prime Minister Viktor Orban turned to the IMF in November after the forint dropped to a record against the euro and as Hungary’s credit rating was cut to junk. Five months later, formal talks on financial aid have yet to start as the nation remains embroiled in a legal dispute with the European Union over the independence of the central bank and other institutions.

The government has done “exactly what the IMF has asked them to do,” said Hasenstab, who also manages Templeton’s Luxemburg-based $43 billion Global Bond Fund. (TEGACEH) “They just have a little friction in the market,” he said, adding that he was still “positive” on the forint in the “medium-term.”

The Hungarian government has been doing “structural reforms that most of Europe hasn’t touched,” including raising retirement ages, Hasenstab said. The country is also benefiting from its “economic linkage with German exports,” he said.

‘Blackmail’

Hungarian bonds have returned 12 percent this year in dollar terms for the biggest gains worldwide, according to Bloomberg/EFFAS indexes. The forint depreciated 0.4 percent to 298.6 per euro by 12:49 a.m. in Budapest, paring gains so far in 2012 to 5.5 percent.

The government’s benchmark 10-year notes maturing in June 2022 slumped for a second day, lifting yields three basis points, or 0.03 percentage point, 9.049 percent, compared with this year’s low of 8.4 percent on Feb. 8. The yield reached 10.8 percent on Jan. 4, the highest ever for that security. Templeton is the biggest owner of the 2022 bonds with 6.8 percent of the outstanding amount at the end of last year, according to data compiled by Bloomberg.

The European Commission shouldn’t make demands of Hungary that aren’t related to economic issues in exchange for a bailout, Mihaly Varga, Orban’s chief of staff, told HirTV late yesterday. Orban told public radio MR1-Kossuth on April 13 that political conditions to starting talks would amount to “blackmail” and may lead to a battle at court.

‘Paid to Wait’

“A new chapter in the story of ’Why the IMF and the Hungarian government are unlikely to ever reach an agreement’ began on Friday,” Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in a research report today. “The risk scenario of euro-forint levels above 300 is approaching.”

Templeton’s Hasenstab said it’s worth holding Hungarian assets because of “pretty significant yields”.

“In the case of Hungary you are paid to wait,” he said.

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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