The currency appreciated 0.5 percent to 277.71 per euro by 4:58 p.m. in Budapest. The cost of insuring Hungary’s debt with credit-default swaps fell 22 basis points to 248, the lowest since June 2011. Yields on the government’s benchmark 10-year bonds fell 11 basis points to 6.626 percent.
Demand for higher-yielding assets has risen as central banks in Europe and the U.S. eased monetary policy to help economies recover from recession. While the market situation has improved, the Hungarian government knows it’s “far” from a position where it can say it can do without IMF help, Mihaly Varga, the minister in charge of negotiating with international lenders, told a conference in Budapest today.
“If we didn’t have these low interest rates in the euro zone and the U.S., I don’t think the markets would be so positive about the Hungarian outlook and we wouldn’t have that rally in the Hungarian bonds,” Magdalena Polan, a London-based economist at Goldman Sachs Group Inc., told a conference in Budapest today. An IMF deal would help Hungary reduce borrowing costs, she added.
Emerging-market stocks rose to the highest level in more than a week after U.S. retail sales beat estimates and as a report showed improved German investor sentiment, boosting the outlook for exports.
Hungary sold 60 billion forint ($281 million) in three- month Treasury bills, 15 billion forint more than planned, at an auction today. The average yield was 6.12 percent, the lowest for that maturity in a year, according to data from the Debt Management Agency on Bloomberg.
“Hungary is currently benefiting from the wall of quantitative easing-driven money pumping into emerging markets,” Tim Ash, a London-based strategist at Standard Bank Group Ltd., wrote by e-mail today. “It always ends in tears, with a correction, and I guess this time around will not be different.”
The Hungarian government this month scrapped a plan to levy a tax on central bank deals that was an obstacle to obtaining aid from the IMF. The Cabinet is imposing a higher levy on cash withdrawals from ATMs and banks and delaying a pay increase for teachers to keep the budget deficit within 3 percent of gross domestic product, Economy Minister Gyorgy Matolcsy said Oct. 5.
Hungarian assets may strengthen further as long as the government keeps the budget under control and the global environment remains supportive, Zoltan Arokszallasi, an analyst at Erste Group Bank AG, said in a research report today.
“The external market environment is still supportive, the ‘big hunt for yield’ caused by global central bank stimulus is going on in the world, which is boosting Hungarian assets,” Arokszallasi said.
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