Hungary Eurobond Yield Hits 7-Week Low on Fitch; Forint Slides
Hungary’s foreign-currency bond yields slid to the lowest in seven weeks after Fitch Ratings raised the country’s outlook to stable from negative on the government’s plans to narrow the deficit. The forint dropped.
The yield on Hungary’s 2021 dollar notes fell six basis points, or 0.06 percentage point, to 4.752, the lowest since Oct. 31, by 4 p.m. in Budapest. The forint weakened 1.2 percent to 288.41 per euro after gaining 1 percent in the previous two days. The currency slid 1.6 percent this week, the biggest depreciation since the five days through Aug. 31.
Fitch kept Hungary’s long-term rating at BB+, its highest junk grade, according to a statement late yesterday. Prime Minister Viktor Orban has introduced new taxes, including special levies on the banking and telecommunication industries, to keep the budget shortfall below 3 percent of economic output and avoid losing European Union development funds.
Fitch’s move was a “shock” given market expectations the ratings company may downgrade Hungary, Peter Attard Montalto, a London-based strategist at Nomura International Plc, wrote by e- mail today. “While we certainly do not underestimate the government’s commitment” to budget discipline, Orban’s fiscal policies are “unsustainable” in many areas, Montalto said.
The forint slid today as standoff between U.S. parties on budget talks hit demand for emerging-market assets, with the benchmark MSCI stock index falling the most in six weeks.
“Global markets are moving today on concern about the U.S. talks on the fiscal cliff,” Akos Kuti, Budapest-based analyst at broker Equilor Befektetesi Zrt., wrote in a research report today.
Standard & Poor’s lowered Hungary’s rating to two steps below investment grade on Nov. 23, saying Orban’s policies are eroding economic-growth prospects.
The forint fell to a record low against the euro in January and the yield on the country’s 2021 dollar bond yield peaked at 9.37 percent as Orban’s seizure of pension assets and the imposition of foreign-currency losses on banks cost Hungary its investment-grade credit rating. The currency has gained 9.1 percent against the euro this year, the biggest gain among 31 major currencies tracked by Bloomberg after the Polish zloty.
Hungary’s local-currency bonds returned 37 percent this year in dollar terms, the most worldwide after Greek and Portuguese debt, according to Bloomberg/EFFAS indexes. Non- residents increased their holdings to a record 5 trillion forint on Dec 14, according to state data.
Hungary’s public debt will fall to 73 percent of gross domestic product in 2013 from a projected 77 percent this year, according to government forecasts.
The forint jumped 9 percent in 2012 as the country reduced its budget deficit and bond purchases by central banks in the euro region and the U.S stoked demand for riskier assets.
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