Hungary’s bond yields dropped to a seven-year low on bets a recovering global economy and receding euro area crisis will allow the central bank to cut rates further after five consecutive months of easing.
Yields on the government’s benchmark 10-year bonds slid seven basis points, or 0.07 percentage point, to 6.35 percent, the lowest since October 2005. The currency appreciated 0.5 percent to 286.66 per euro by 4:35 p.m. in Budapest after dropping to as low as 290.33 early yesterday, the weakest in almost five months.
The Magyar Nemzeti Bank yesterday cut its benchmark rate by 25 basis points to a two-year low of 5.75 percent to help the country emerge from recession. Emerging-market stocks rose today, sending the benchmark MSCI index to an eight-month high, as the World Bank increased its growth forecast for East Asia. European equities gained as Greece had its credit rating raised by Standard & Poor’s, citing the determination of euro-area governments to keep the country in the 17-nation currency zone.
Hungary’s “rate cut cycle will continue as long as the market accepts it without serious forint weakness or capital flight,” Balint Torok, a Budapest-based analyst at Buda-Cash Brokerhaz Zrt., wrote in a research report today.
Forward-rate agreements used to wager on interest rates in three months fell two basis points to 5.3 percent, 47 basis points below the Budapest Interbank Offered Rate, indicating half a percentage point of easing in the next quarter.
“The forint has bounced back despite the rate cut as it couldn’t sustain losses in this good environment,” Zsolt Kondrat, a Budapest-based analyst at Bayerische Landesbank’s MKB unit, wrote in a research report today.
European assets added to gains as data showed that German business confidence rose more than forecast and optimism mounted that U.S. policy makers will reach an agreement on next year’s budget.
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