Hungary’s bond yields fell the most in more than two weeks and borrowing costs plunged at a Treasury-bill auction on speculation the central bank will cut interest rates next week to counter the deepening recession.
Traders added to bets on monetary easing and yields declined since reports showed on Feb. 14 gross domestic product slumped the most in three years in the fourth quarter and inflation slowed in January. The central bank, which cut rates to a two-year low in December, will be more willing to ease once Andras Simor’s term as president ends next month, analysts at Barclays Plc said after talking with officials in Budapest.
“Our main take-away from the meetings was a more dovish than previously expected view on monetary policy,” Daniel Hewitt, a London-based economist at Barclays, wrote in an e-mailed report today.
Yields on the government’s 10-year forint bonds slid 11 basis points, or 0.11 percentage point, to 6.22 percent, the biggest drop since Jan 31. The forint gained 0.3 percent to 290.79 per euro by 4:43 p.m. in Budapest, climbing for a second day.
The government sold 65 billion forint ($223 million) in three-month Treasury bills at today’s sale, 15 billion forint more than planned. The average yield was 5.17 percent, the lowest since May 2010, according to data from the Debt Management Agency on Bloomberg.
The Magyar Nemzeti Bank has lowered the benchmark rate by a cumulative 1.5 percentage points since August to 5.5 percent, the lowest level since 2010. The Monetary Council will deliver a 25 basis-point cut on Feb. 26, according to all 10 economists surveyed by Bloomberg. Rate-setters will continue with 25 basis-point cuts until 4 percent, Hewitt said.
Economy Minister Gyorgy Matolcsy, who has urged the central bank to better help the government boost growth, is “likely” to succeed Simor at the central bank, Hewitt said. Four rate-setters appointed by Prime Minister Viktor Orban’s ruling party have outvoted Simor and his two deputies, who opposed easing, in each month since August.
Emerging-market stocks gained today as improved German economic sentiment lifted demand for riskier assets.
Hungarian forward-rate agreements fixing interest in 12 months slid seven basis points to 4.16 percent, the lowest level on a closing basis since May 2008. The FRA contracts traded 128 basis points below the Budapest Interbank Offered Rate, the widest spread since Jan. 3.
“The GDP and CPI data strengthened rate cut expectations, which helps bonds,” Sandor Jobbagy, a Budapest-based analyst at Intesa Sanpaolo SpA’s CIB Bank unit, said in e-mailed comments to Bloomberg today.