The forint strengthened the most in two weeks and Hungarian government bonds rallied as a record three-year lending operation to euro-area banks by the European Central Bank boosted appetite for higher-yielding assets.
The currency of Hungary, the European Union’s most indebted eastern member, appreciated 1 percent to 288.1 per euro by 4:35 p.m. in Budapest, the biggest advance on a closing basis since Feb. 13. A second day of gains in the government’s benchmark five-year bonds cut yields 25 basis points to 8.425 percent.
The Frankfurt-based ECB said today it will lend 800 financial institutions 529.5 billion euros ($712.2 billion) for 1,092 days, a bigger allotment than economists estimated in a Bloomberg News survey. Hungary’s central bank yesterday kept its two-week deposit rate at 7 percent, the highest benchmark rate in the EU.
“With the EU’s highest base rate, investors tend to favor the forint when there is a risk-on mode,” Peter Karsai, a trader at Commerzbank AG in Budapest, wrote in an e-mailed response to questions from Bloomberg after the ECB announcement.
The forint has rallied 11 percent, the biggest gains worldwide, since Prime Minister Viktor Orban said on Jan. 5 he was ready to discuss conditions needed for a “quick” bailout from the International Monetary Fund and the EU.
The government still hasn’t resolved disputes with the international lenders over the independence of the central bank and other institutions, more than three months after requesting IMF aid.
“The news flow on the European Commission/IMF front is very downbeat,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, wrote in an e-mailed note today, adding that the forint rallied on optimism that the ECB funding is “ultimately finding its way into emerging markets.”
The EU and the IMF still need to clarify what Hungary needs to do to start aid talks, Mihaly Varga, Prime Minister Viktor Orban’s chief of staff, told Inforadio in an interview late yesterday.
“The ‘pre-negotiation’ phase seems to be going nowhere fast,” Ash wrote.
The cost of insuring against default on Hungary’s debt with credit-default swaps fell to 508 basis points from 512 basis points yesterday, according to data provider CMA.