Hungary’s bonds slumped the most in a year, with yields rising from a seven-year low, and the forint fell on concern that the U.S. Federal Reserve will end debt purchases that fueled investor demand for riskier assets.
Yields on 10-year notes, which increased as much as 44 basis points, or 0.44 percentage point, last traded 32 basis points higher at 6.31 percent. The yields hit the lowest since September 2005 yesterday. Hungary’s currency weakened as much as 1.3 percent and depreciated 0.8 percent to 290.89 per euro by 4:17 p.m. in Budapest, erasing its advance for the week.
Fed board members said they will probably end their $85 billion monthly bond purchases in 2013, according to minutes of their Dec. 11-12 meeting released yesterday. Additional liquidity from central banks in the U.S. and Europe helped the forint gain 8 percent in 2012, the second-biggest advance, after the Polish zloty, among more than 100 currencies tracked by Bloomberg. Hungarian bonds returned the most in euro terms in 2012 after Greek and Portuguese debt, according to data from Bloomberg and EFFAS.
“The Fed comments were probably the trigger for Hungary to succumb to the general slump in emerging markets,” Andras Sovany, a Budapest-based fixed income trader at ING Groep NV, wrote in an e-mail today.
The MSCI Emerging Markets Index of stocks fell 0.5 percent today, snapping a nine-day rally.
Hungarian assets pared losses after data showed U.S. employers added more workers last month. Hungary’s benchmark BUX stock index rose 0.3 percent after sliding 0.5 percent earlier today.
This week’s rally in the 2022 bonds pushed their 14-day relative strength index to 85 yesterday, above the 70 level which signals to analysts that a security is overbought. The RSI last stood at 60.
“The correction of the New Year’s optimism came because of the Federal Reserve’s minutes,” Gergely Gabler, a Budapest-based analyst at Equilor Befektetesi Zrt., wrote in a research report today. “The negative sentiment can also be felt on the Hungarian market.”
The forint has also been hit by uncertainty over who Prime Minister Viktor Orban will appoint to lead the Magyar Nemzeti Bank when Andras Simor’s term expires in March, Karoly Bamli, a Budapest-based foreign-currency trader at Commerzbank AG, wrote in an e-mail today.
“As long as more information isn’t available on future monetary policy preferences, volatility and vulnerability may stay elevated” for the currency, Bamli wrote.
The central 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 more than a percentage point in further easing for 2013.
The central bank should also “bravely use unorthodox tools” to stimulate the economy, Economy Minister Gyorgy Matolcsy said in an interview with Budapest-based HirTV Dec. 22.
Matolcsy is the leading contender to replace Simor, according to media including website Index and weekly Heti Valasz. That appointment would be “highly negative” and would weaken the forint, Mai Doan, a London-based economist at Bank of America Corp., wrote in a report today.