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Forint, Hungarian Bonds Rally on Debt Auction, Obama Tax Plan

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Dec. 7 (Bloomberg) -- The forint strengthened the most in three days and Hungary’s bonds rebounded as the government sold more debt at an auction than intended and U.S. President Barack Obama’s plans to extend tax cuts spurred a global rally.

The forint appreciated 0.5 percent to 278.42 per euro at 12:23 p.m. in Budapest, the biggest advance among more than 20 emerging-market currencies tracked by Bloomberg. The government’s 8 percent bonds maturing in February 2015 rose the most in five weeks, reducing the yield by 16 basis points to 8.1 percent. The cost of protecting Hungary’s debt from non-payment with credit default swaps fell to 358.09 basis points from 367.72, according to data from CMA.

“There won’t be a tax increase in the U.S.” and “that’s certainly positive for global sentiment,” Gyorgy Cselenyi, head of interest-rate trading at BNP Paribas SA in Budapest, said in a phone interview.

Hungary today sold 45 billion forint ($216 million) of three-month Treasury bills, 5 billion forint more than planned, as the cost of borrowing fell from the last sale on Nov. 30.

The forint and Hungarian bonds are rebounding from a slump yesterday after Moody’s Investors Service lowered Hungary’s credit rating to one step from junk on concern that the government is plugging budget holes with “temporary measures” that won’t be sustainable.

Prime Minister Viktor Orban is bringing private pension funds under state control and imposing special taxes on banking, energy, telecommunications and retailing to cut the budget gap to the European Union limit of 3 percent of gross domestic product next year. Hungary is the EU’s most-indebted eastern member, with debt estimated at 79 percent of GDP this year.

Global Rally

“The global rally may have helped minimize the impact of the Moody’s downgrade on Hungarian markets,” Cashline Securities analysts led by Kornel Sarkadi Szabo in Budapest wrote in a note to clients today. “If sentiment changes, naturally the risks associated with Hungary may come back into focus.”

Hungary’s benchmark BUX stock index rose 0.9 percent, heading for the highest close since Nov. 24, led by drugmakers Egis Nyrt., which rose 4.3 percent, and Gedeon Richter Nyrt., up 1.9 percent.

Obama said he’ll agree to a two-year extension on all Bush-era tax cuts in a compromise deal he called “an essential step on the road to recovery.”

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

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

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