Forint Slumps Most This Year as Bonds Drop, Default Swaps Surge

Hungary’s forint weakened the most in almost six months, government bonds tumbled and credit-default swaps jumped to the highest since January on concern aid talks with the International Monetary Fund will be further delayed.

The forint declined as much as 2.1 percent, the most since Dec. 8, and traded down 1.7 percent to 305.86 per euro by 1:41 p.m. in Budapest, set for a fourth week of losses. Bonds fell for a fourth day, lifting benchmark 2022 yields 13 basis points to 9 percent, the highest in more than a month.

Proposed amendments to the central bank law, designed to end a row delaying the IMF talks, are not enough to restore the Hungarian regulator’s independence, the European Central Bank said yesterday. The European Union’s most indebted eastern member should reject the EU’s economic-policy recommendations for all member states and chart its own course for strengthening its economy, Prime Minister Viktor Orban said yesterday.

“We believe that no negotiations will take place before Hungary modifies the central bank law,” Societe Generale SA analysts wrote in a report to clients today. Investors should “remain short forint assets for now,” they said.

The yield premium investors demand to hold 10-year forint bonds rather than German bunds surged 29 basis points, or 0.29 percentage point, today to 779, the most since Jan. 17. Default swaps protecting Hungary’s debt for five years, which rise as perceptions of creditworthiness worsen, climbed 11 basis points to a four-month high of 623, data compiled by Bloomberg shows.

European stocks declined as unemployment in the euro area, the biggest buyer of Hungarian exports, jumped to a record high and a Chinese purchasing managers’ index showed manufacturing growth in the world’s second-largest economy slowed in May.

’More Tremor’

Hungarian bonds were cut to sell from hold at Raiffeisen Bank International AG (RBI), which cited possible delays in the country’s IMF talks and risks of Greece quitting the euro in a report today from Zoltan Torok, a Budapest-based analyst.

“The weeks ahead will be filled with more tremor as no resolution is seen to come vis-à-vis the possibility of the Greek exit scenario,” Torok wrote. “The local spice is added by the government’s ambiguity towards the IMF,” undermining “the market belief that Hungary would be able to sign the loan agreement within three months,” he wrote.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

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

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