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Hungarian Bonds Rebound as Cabinet Takes Time to Suit IMF Needs

Hungary’s bond yields fell from the highest in more than seven weeks and the forint gained as a vote on a central bank law was delayed for more time to reach a consensus with the International Monetary Fund on its content.

The government’s benchmark 10-year bonds gained, cutting yields 12 basis points, or 0.12 percentage point, to 8.93 percent after closing at 9.05 percent on June 1, the highest since April 10. Hungary’s currency appreciated 1 percent to 301.9 by 4:30 p.m. in Budapest, the biggest rally on a closing basis since April 25.

The vote on the central bank law amendments will probably take place before Parliament goes into summer recess on July 15, Antal Rogan, head of the ruling Fidesz party’s group of lawmakers, told reporters in Budapest today. Rogan agreed to delay the vote, originally scheduled for today, after a request from Mihaly Varga, Hungary’s new chief negotiator, to give the government more time to agree on the necessary changes with the IMF, the European Union and the European Central Bank.

“The delay in the vote provides a chance to make the law palatable for the IMF and the ECB and then the formal bailout talks can finally start,” Peter Karsai, a Budapest-based trader at Commerzbank AG, and colleagues wrote by e-mail today.

Hungary, which has failed to start the talks for more than six months, remains unprepared to make concessions from its sovereignty for the sake of an aid deal, Andras Giro-Szasz, a spokesman for the government, said in an interview with Budapest-based ATV late yesterday.

“It’s still hard to judge what the government’s real intentions are, yet the delay in the legislation managed to boost the forint,” Karsai wrote.

‘Bounds of Reason’

The cost of insuring against default on Hungary’s debt with credit-default swaps rose five basis points to 630 basis points, according to data compiled by Bloomberg, set for the highest level since January.

Hungary will compromise “within the bounds of reason” regarding a planned increase in the number of central bank policy makers and the nomination of a third vice president at the central bank, Peter Szijjarto, state secretary at the prime minister’s office, said in an interview on public television M1 today.

“We expect the government to successfully conclude international aid talks later in the year, paving the way for a drop in 10-year yields to 7.30 percent by year end,” Zoltan Arokszallasi, an analyst at Erste Group Bank AG, wrote in a research report today.

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