Hungary’s 10-year bond yields fell to the lowest level in four months on speculation that continued stimulus from the Federal Reserve will allow the country’s central bank to extend monetary easing this year.
Yields on the forint-denominated notes dropped seven basis points, or 0.07 percentage point, to 5.53 percent, the lowest since June, at 4:53 p.m. in Budapest. The currency strengthened 0.3 percent to 293.59 per euro, for a 0.4 percent gain in five days, the fifth straight week of advances.
Hungary’s central bank cut its benchmark rate in 14 consecutive steps to a record 3.6 percent by last month. The “temporary” settlement found in the U.S. debt dispute this week will probably spur the Fed to delay its “tapering” until 2014, letting Hungary cut rates further, Gergely Tardos and Levente Papa, Budapest-based analysts at OTP Bank Nyrt., the country’s largest lender, wrote in an e-mailed report today.
“The supportive global market mood helps forint bond yields to go to lower levels,” the OTP analysts said.
Fed Bank of Chicago President Charles Evans said yesterday the U.S. shouldn’t reduce stimulus after some economic reports stopped during a 16-day government shutdown.
“The setup is the best possible one for emerging-market assets,” the OTP analysts said. “The end of talks came, raising market optimism, but the remaining uncertainty is likely to make the Fed delay tapering well into 2014.”
The Magyar Nemzeti Bank will cut its main rate by 20 basis points on Oct. 29, according to eight of the 10 analysts surveyed by Bloomberg. One economist sees a 10 basis-point cut and another expects a 15 basis-point reduction.
“The central bank may use the positive sentiment for further easing,” said David Nemeth, an economist at K&H Bank, a unit of KBC Groep NV (KBC), who expects a 20 basis-point cut this month. “The temporary solution to the U.S. budget and debt problem significantly changed risk appetite so there is stronger demand for forint assets,” Nemeth wrote in an e-mail.
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