Hungarian government bonds rallied, sending five-year yields to the lowest in two months, as investors increased bets on a fall in borrowing costs.
The yield on the government bonds maturing in November 2017, the most actively traded in Hungary this week, dropped 13 basis points, or 0.13 percentage point, to 6.972 percent, the lowest since June 15, as of 2:57 p.m. in Budapest.
“The market has started to price in a roughly 50 basis-point decrease of the base rate in the next 12 months,” analysts at Erste Group Bank AG including Zoltan Arokszallasi in Budapest, wrote in a research report today.
One-year interest-rate swaps, derivatives used to hedge against or speculate on future changes in funding costs, fell to 5.9175 percent on Aug. 17, the lowest since Nov. 22, from 6.3075 percent on Aug. 5. The swaps traded at 5.9625 percent today.
Policy makers may delay or forego a cut in interest rates to protect the country’s currency amid a global fall in demand for risk, analysts at Societe Generale SA, UniCredit SpA and Erste said today. The forint has weakened 7.4 percent against the Swiss franc so far this year.
“We are concerned about the volatility in risk assets and the impact on the forint,” analysts at Societe Generale, including Salomon Guillaume in London, wrote in a research report today. “Such volatility could delay the easing cycle.”
The forint strengthened 0.2 percent to 272.2 per euro, after weakening as much as 0.9 percent earlier today.
The Magyar Nemzeti Bank left borrowing costs at 6 percent for a sixth month on July 26 as focus shifted from inflation to the impact of Europe’s debt crisis on the economy. Policy makers said they planned to leave borrowing costs unchanged for an “extended period.”
The benchmark rate will be kept unchanged at the bank’s next rate meeting on Aug. 23, according to all 19 economists surveyed by Bloomberg.