Forint Caps Biggest 5-Day Drop in 4 Months as Yields Increase

The forint capped the biggest five-day depreciation in more than four months and borrowing costs rose at an auction as the European debt crisis escalated and Hungary struggled to start bailout talks.

The Debt Management Agency sold 53 billion forint ($226 million) of bonds maturing in 2015, 2017 and 2022 at its biweekly sale today, 11 billion forint more than planned. The agency raised 20 billion forint in notes due in 2015 at an average yield of 8.22 percent, compared with 7.7 percent at the last sale of that maturity on May 3. The forint retreated 1 percent to 298.22 per euro by 4:38 p.m. in Budapest, increasing the depreciation in the past five days to 3 percent, the most on a closing basis since Jan. 4.

Demand for riskier assets dropped as European Central Bank President Mario Draghi acknowledged for the first time that Greece could leave the monetary union after political gridlock in the southern European country threatened access to bailout funds. Hungary hasn’t started talks on an aid deal of its own six months after requesting the assistance from the International Monetary Fund.

“We will see better levels to buy Hungarian government bonds in the medium term,” Esther Law, a London-based strategist at Societe Generale SA, wrote in e-mailed comments today. “Concern over the Eurozone lingers and also as we don’t expect the negotiations on a new financial package to start before the end of the summer at the earliest,” Law said.

Hungary can first “realistically” obtain a credit line from the IMF in “early” fall, Magyar Hirlap reported yesterday, citing an interview with Mihaly Varga, appointed as the country’s new chief negotiator.

The debt agency today sold 17 billion forint in 2017 bonds at 8.35 percent, compared with 7.82 percent two weeks ago, according to auction results from the agency on Bloomberg. The agency sold 16 billion forint in 2022 debt at 8.45 percent, compared with 7.98 percent on May 3. Investors bid for a total 123 billion forint in debt, compared with 128 billion forint two weeks ago. The AKK sold an additional 6.5 billion forint from the 2015, 2017 and 2022 notes in a later, non-competitive tender.

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