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Hungary’s Bonds Slump After Fitch Ratings Says Upgrade Unlikely

Hungary’s bonds slumped the most in a week and the forint fell after Fitch Ratings said it’s “very unlikely” to lift the country to investment-grade.

Yields on Hungary’s benchmark 10-year bonds erased earlier declines to rise eight basis points, or 0.08 percentage point, to 6.32 percent. The forint weakened less than 0.1 percent to 292.61 per euro by 11:22 a.m. in Budapest.

“Unpredictable” policies from Prime Minister Viktor Orban’s government, a shrinking economy and Hungary’s failure to secure an International Monetary Fund aid agreement are weighing on the ratings, Fitch director Matteo Napolitano said at a conference in Warsaw today. Fitch rates Hungary BB+, one step below investment grade, with a stable outlook.

“An upgrade to investment grade would be very important for the Hungarian market to find its feet,” Akos Kuti, the Budapest-based head of research at broker Equilor Befektetesi Zrt., said in a telephone interview. “Based on the comments, we now have to wait another six months or year for that to be on the agenda.”

The forint was set for a 1.1 percent advance this week after Mihaly Varga, the minister in charge of aid talks with the International Monetary Fund, said in a HirTV interview that the currency should be trading in a stronger range. Economy Minister Gyorgy Matolcsy triggered losses last week after writing in his weekly column in Heti Valasz newspaper on Jan. 10 that he opposed strengthening the currency to fight inflation.

“The market has probably taken Varga’s comments as verbal intervention,” Levente Blaho and Adam Keszeg, analysts at Raiffeisen Bank International AG (RBI), wrote in a research report today. “The external environment has also been favorable for regional currencies and remains so because of better-than- expected Chinese data.”

Stocks around the world rose with the MSCI Emerging Markets Index (MXEF) adding 0.7 percent after data showed China’s economy accelerated for the first time in two years.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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