Hungary’s bonds fell, sending the yields on 10-year notes to the highest level in almost a week after Standard & Poor’s cut the country’s credit rating further into junk status.
The yield on local currency debt due in 2022 rose six basis points, or 0.06 percentage point, to 6.98 percent by 4:28 p.m. in Budapest. The currency of Hungary, the European Union’s most indebted eastern member, gained 0.2 percent to 281.92 per euro, clawing back some of its 1 percent slide triggered by S&P’s announcement late on Nov. 23.
S&P lowered the long-term foreign- and local-currency sovereign ratings one level to BB, two steps below investment-grade status, citing “unorthodox” tax policies pursued by Prime Minister Viktor Orban’s government for eroding economic-growth prospects.
“The country is moving further and further away from the prospect of returning to the group of reliable investment destinations,” Zoltan Reczey and Gergely Palffy, analysts at Buda-Cash Brokerhaz Zrt., wrote in a research report today.
OTP Bank Nyrt., Hungary’s largest lender, fell 0.5 percent to 3,912 forint. The BUX Index gained 0.1 percent, underperforming benchmark gauges in Poland and the Czech Republic, which advanced at least 0.5 percent.
Moody’s Investors Service and Fitch Ratings have negative outlooks on Hungary’s credit. Hungary is rated Ba1 at Moody’s and BB+ at Fitch, both one step higher than S&P.
“It is likely that other rating agencies will follow S&P,” Carsten Hesse, a London-based analyst at Wood & Co., wrote in a research report. “Negative newsflow might continue” for Hungary, he said.
The cost of insuring Hungarian debt against non-payment for five years using credit-default swaps fell five basis points to 297, paring November’s increase to 19, according to data compiled by Bloomberg. The forint has appreciated 0.5 percent in November and 12 percent so far in 2012, the best performance this year among more than 100 currencies tracked by Bloomberg.
“Hungary’s outperformance may however turn out as short-lived after Friday’s rating downgrade and the expected rate cut,” Daniel Lenz, Frankfurt-based chief emerging-markets strategist at DZ Bank AG, wrote in an e-mailed report today.
DZ Bank recommended investors buy koruna and sell forint, according to the report.
Hungary’s central bank will cut its benchmark rate by 25 basis points to 6 percent tomorrow in the fourth reduction in as many months, according to 23 out of 24 analysts polled by Bloomberg. One economist expects no change.