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Hungary Yields Hit Seven-Year Low as Rate Bets Boost Bill Sale

Hungary’s bond yields fell to the lowest in more than seven years and demand jumped at a Treasury bill sale on speculation slowing inflation and rising risk appetite will allow the central bank to cut interest rates.

Yields on 10-year notes fell three basis points, or 0.03 percentage point, to 5.999 percent by 4:12 p.m. in Budapest, the lowest since September 2005. The government sold 75 billion forint ($337 million) of 12-month Treasury bills, 25 billion forint more than planned, at an auction today, matching the record amount raised from that maturity on Dec. 6. The forint gained 0.2 percent to 290.3 per euro.

The Magyar Nemzeti Bank cut its benchmark rate by a cumulative 1.25 percentage points in five monthly meetings last year to 5.75 percent. Traders in interest rate derivatives are pricing in the same amount of easing for 2013. The rate’s “equilibrium” level is 4.5 percent to 5 percent, policy maker Ferenc Gerhardt said in a Nov. 5 interview.

“We still see cuts progressing meeting by meeting” of the rate-setting Monetary Council, Peter Attard Montalto, a London-based strategist at Nomura International Plc, wrote in a research report today.

Investors bid for 190 billion forint of debt at today’s auction, compared with 114 billion forint two weeks ago. The average yield was 5.3 percent, the lowest since May 2010, according to data from the Debt Management Agency on Bloomberg.

The central bank last month lowered its inflation forecast for 2013 to an average 3.5 percent, from a projection of 5.8 percent in September, as the government cut household energy prices 10 percent from January and delayed an excise tax rise.

The Cabinet plans two further rounds of price cuts for heating, natural gas and electricity, Magyar Hirlap reported today. The Development Ministry declined to comment in an e-mailed response to questions from Bloomberg News.

“The central bank will probably continue rate cuts, which may further push down the shorter end of the yield curve,” Akos Kuti, a Budapest-based analyst at broker Equilor Befektetesi Zrt., wrote in an e-mailed report today.

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