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Forint Gains, Hungary Bond Risk Falls on IMF Aid Outlook

Oct. 12 (Bloomberg) -- The forint gained and the cost to protect against a default by Hungary fell to a 14-month low after Prime Minister Viktor Orban said Hungary isn’t far from a “good” agreement with the International Monetary Fund on aid.

The currency appreciated 0.5 percent to 280.5 per euro by 4:33 p.m. in Budapest, extending this week’s advance to 0.8 percent. Credit-default swaps slid two basis points to 302, the lowest on a closing basis since July 2011. Yields on the government’s benchmark 10-year bonds basis dropped 15 basis points, or 0.15 percentage point, to 6.92 percent.

There is a “good chance” for an agreement with the Washington-based lender, which is aimed at reducing Hungary’s financing costs, Orban said today in an interview with state-run MR1 radio. The aid talks have dragged on for almost a year as the government insists on a precautionary credit line that doesn’t carry the same conditions attached to an IMF standby loan, government spokesman Andras Giro-Szasz told TV2.

“Hungary’s improving risk perception is mainly to do with the points of view closing in on an agreement,” Imre Kerekgyarto, a Budapest-based trader at Commerzbank AG, wrote in an e-mail today.

Hungary’s economic vulnerability has declined “significantly” and the country may not need external financing in 2013, provided the global environment doesn’t deteriorate, Mihaly Varga, the government’s chief bailout negotiator, told state news service MTI today.

While Hungary has not set a date for the resumption of aid talks, an IMF deal is important, Varga said.

‘Mixed Messages’

“The government may not be willing to strike a deal unless market sentiment deteriorates a lot,” Zoltan Arokszallasi, an analyst at Erste Group Bank AG, wrote in a research report. Investors are becoming more focused on changes the government is making to remove a potential obstacle to aid talks with the IMF rather than the timing of the deal, he said.

Hungary last week scrapped a plan to tax financial transactions at the central bank, which the IMF had opposed.

“What could help risk perception further is another round of progress on IMF talks,” Tatha Ghose, a London-based economist at Commerzbank, wrote in a research report today. “In this regard, we think that the government has provided just the right signal.”

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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