The forint had the steepest weekly drop in almost two months and the worst daily performance across emerging markets on concern foreign investors are reducing their holdings of local currency debt.
The currency depreciated 0.6 percent to 300.16 per euro by 2:59 p.m. in Budapest, extending its loss in the past five days to 1.3 percent.
Foreign ownership of local debt fell to 4.89 trillion forint ($21.7 billion) as of Aug. 13, the lowest level since April 19, data from the Debt Management Agency showed. Yields on five-year bonds rose to a seven-week high today.
“Some funds were selling bonds hard and their exit hit the forint,” Akos Ruzsonyi, a Budapest-based currency trader at Commerzbank AG, wrote by e-mail today. “Besides, there is a long weekend coming up, so people are closing their positions,” Ruzsonyi said, referring to a four-day break starting tomorrow.
The overseas ownership of Hungary’s debt recovered to 4.99 trillion forint on Aug. 14, still 200 billion forint lower than on July 8. The latest rebound makes the dip earlier this week appear “less scary,” Gabor Ambrus, a London-based analyst at 4CAST Ltd., wrote in an e-mail today, referring to the agency’s figures.
Funds controlled by Franklin Resources Inc. alone held 6.6 percent of the benchmark 10-year forint bonds and more than 31 percent of 10-year dollar notes, according to data compiled by Bloomberg.
Yields on the government’s five-year bonds advanced 9 basis points, or 0.09 percentage point, to 5.65 percent, in a fourth day of increases.
The forint weakened 2.9 percent since the government said on July 16 it plans to expand measures to help foreign-currency mortgage borrowers, who have suffered as the forint depreciated against the Swiss franc and the euro.
Hungary’s currency extended losses after data showed on Aug. 14 gross domestic product advanced 0.1 percent in the second quarter compared with the previous three months, slower than the 0.3 percent expansion predicted in a Bloomberg survey. The central bank cut its benchmark rate for a 12th consecutive month to a record 4 percent in July, pledging to continue easing to help the economy recover from recession.
“The expected continuation of the rate cuts is making the appreciation of the forint less likely, while the rescue for foreign-currency borrowers being prepared is also weighing on the forint,” Zoltan Arokszallasi, a Budapest-based analyst at Erste Group Bank AG, wrote in a research report today.