Hungarian bond yields may fall further as the government keeps the budget deficit in check and negotiates an International Monetary Fund bailout, according to the fund management unit started this month by broker Equilor.
The yield on Hungary’s benchmark five-year bonds fell to a 11-month low of 7.1 percent yesterday, compared with 10.8 percent in January. Foreigners’ holdings of local currency-denominated bonds and bills rose to a record 4.73 trillion forint ($21 billion) yesterday, which may help the securities gain further, Zsolt Pillar, chief executive officer of Equilor Alapkezelo, said in an interview at his office in Budapest yesterday.
Hungarian assets have rallied as Prime Minister Viktor Orban’s government started talks on an IMF aid package last month. The government cut spending and took over privately-managed pension assets last year to bring the deficit below the European Union’s 3 percent of gross domestic product limit for the first time since Hungary joined the bloc in 2004.
“The bond market in Hungary is very exciting and offers good returns,” Pillar said, adding that the government has managed to keep the deficit from exceeding “critical” levels. “I am not expecting too negative a scenario in Hungarian bonds. There may be further room for yields to go downward.”
Equilor’s fund unit, which is 90 percent owned by the brokerage and 10 percent by Pillar, is starting with 8.5 billion forint under management, which he plans to increase to about 15 billion forint by the end of 2013.
The five-year bond yields rose three basis points to 7.133 percent and the forint weakened 0.4 percent to 278.31 per euro by 4:26 p.m. in Budapest, bringing its decline this week to 0.2 percent.