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Hungary Bonds Jump as Orban Talks Easing Aid Doubt Lifts Forint

Hungary's Prime Minister Viktor Orban
Hungary's Prime Minister Viktor Orban. Photographer: Jock Fistick/Bloomberg

Hungary’s bonds and the forint rallied for a second day as Prime Minister Viktor Orban pledged to cooperate with central bank President Andras Simor after a dispute about the bank’s independence threatened the country’s bailout.

Ten-year government bonds in forint climbed, cutting the yield 34 basis points to 10.06 percent, according to generic prices compiled by Bloomberg. Hungary’s currency appreciated as much as 1 percent and traded 0.4 percent stronger at 317.77 per euro by 12:26 a.m. in Budapest, paring this week’s loss to 0.9 percent after reaching a record low of 324.24 yesterday.

It’s in Hungary’s interest to get an International Monetary Fund agreement “as soon as possible” and there’s a “good chance” for swift talks, Orban told reporters in Budapest after meeting with Simor today. The government will hold daily consultations with the central bank and do “everything” to help the institution maintain economic stability, Orban said.

“The government’s commitment to an agreement with the IMF and EU has increased,” Levente Papa, a Budapest-based strategist at OTP Bank Nyrt., Hungary’s largest lender, said by e-mail today. “That’s shown by the fact that the prime minister met the central bank president despite the earlier tensions. Today’s developments certainly ease market concerns.”

The cost of insuring Hungary’s debt through credit-default swaps reached an all-time high this week and the forint touched a record low against the euro after aid negotiations with the IMF and the European Union broke off because of new laws that threaten to undermine the central bank’s independence.

The CDS contracts fell to 695 basis points from 735 basis points yesterday, the highest close on record, data provider CMA said.

The central bank confirmed in a statement today that it will hold “regular consultations” with the government.

The central bank law is “fully compatible” with EU regulations and the government will continue to respect the Magyar Nemzeti Bank’s independence, Economy Minister Gyorgy Matolcsy said in a letter sent to European Central Bank President Mario Draghi and published by the ministry yesterday.

Orban’s comments may not have a longer-term impact on the forint as Hungary still needs to change its central bank law to get an IMF agreement, Raffaella Tenconi, a London-based economist at Bank of America Corp., said in a telephone interview today.

“It will depend on how quickly and how smoothly the negotiations go,” Tenconi said.

The benchmark BUX stock index rose 0.9 percent as OTP Bank advanced 2.1 percent and Magyar Telekom Nyrt., the country’s former phone monopoly, rose 1.5 percent.

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