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Forint Gains as Hungary Seeks IMF Before Bonds: Budapest Mover

The forint gained a second day, extending the biggest quarterly rally in more than 2 1/2 years, as the government said it wants to wait for an international aid deal before selling foreign-currency denominated bonds.

Hungary’s forint appreciated 0.7 percent to 291.32 per euro by 4:42 p.m. in Budapest. The forint extended its advance so far in 2012 to 8.1 percent, set for the strongest quarter since the three months through June 2009.

The forint has rallied since Prime Minister Viktor Orban’s government said on Jan. 5 it was ready to discuss conditions for a “quick” agreement on a credit line from the International Monetary Fund and the European Union. Hungary can sell Eurobonds at the best conditions once the government has reached an agreement on an IMF loan, state-run news service MTI reported today, citing the Economy Ministry.

“It’s moderately positive news that they’re saying there will be Eurobond issuance only after a bailout deal,” Peter Karsai, a Budapest-based trader at Commerzbank AG, said by telephone today, adding that the statement supported bets the government is serious about the need for a bailout.

The forint added to gains after a report showed German business confidence unexpectedly increased in March and as U.S. Federal Reserve Chairman Ben S. Bernanke said an accommodative monetary policy is still needed to spur growth.

The Hungarian government’s benchmark 10-year forint-denominated bonds snapped a four-day retreat, cutting yields 10 basis points to 8.991 percent.

International Dispute

Four months after requesting the IMF aid, Hungary remains in a dispute with the international lenders on legislation which may threaten the independence of the central bank, the judiciary and the data protection authority.

Hungary will probably sell Eurobonds before reaching an IMF deal, Gabor Ambrus, a 4Cast strategist in London, said in an e-mail today. The Eurobonds may sell “reasonably well” at yields “which will not be consistent with debt sustainability over the medium term,” Ambrus said.

The cost of insuring against default on Hungary’s debt with credit-default swaps fell two basis points to 542 basis points, according to CMA, which is owned by CME Group Inc. and compiles prices from dealers in the privately-negotiated market.

Hungary selling Eurobonds before an agreement with the IMF would signal that the government doesn’t aim to reach a deal, Pasquale Diana, a London-based economist at Morgan Stanley, wrote in a research report today.

“Even if this deal was placed successfully, we would view such an announcement as a negative, especially if it comes at a time when the negotiations with international lenders have not moved forward,” Diana said. “It would signal to the market that, despite official rhetoric, the Hungarian authorities have decided to move on and seek alternative sources of funding.”

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