Hungary 10-Year Yields Climb to One-Month High on Fitch Comment

Hungary’s bonds slumped, sending 10-year yields to the highest in a month, and the forint fell after Fitch Ratings said it’s “very unlikely” to lift the country to investment grade.

Yields on Hungary’s benchmark 10-year bonds rose nine basis points, or 0.09 percentage point, to 6.33 percent, the highest rate since Dec. 19. The forint weakened 0.2 percent to 293 per euro by 5 p.m. in Budapest.

“Unpredictable” policies from Prime Minister Viktor Orban’s government, a shrinking economy and Hungary’s failure to secure an International Monetary Fund aid agreement are weighing on the ratings, Fitch director Matteo Napolitano said at a conference in Warsaw today. Fitch rates Hungary BB+, one step below investment grade, with a stable outlook.

“An upgrade to investment grade would be very important for the Hungarian market to find its feet,” Akos Kuti, the Budapest-based head of research at broker Equilor Befektetesi Zrt., said in a telephone interview. “Based on the comments, we now have to wait another six months or year for that to be on the agenda.”

The forint advanced 1 percent this week after Mihaly Varga, the minister in charge of aid talks with the International Monetary Fund, said in a HirTV interview that the currency should be trading in a stronger range. Economy Minister Gyorgy Matolcsy triggered losses last week after writing in his weekly column in Heti Valasz newspaper on Jan. 10 that he opposed strengthening the currency to fight inflation.

Verbal Intervention

“The market has probably taken Varga’s comments as verbal intervention,” Levente Blaho and Adam Keszeg, analysts at Raiffeisen Bank International AG, wrote in a research report today. “The external environment has also been favorable for regional currencies and remains so because of better-than-expected Chinese data.”

The MSCI Emerging Markets Index added 0.6 percent after data showed China’s economy accelerated for the first time in two years.

Matolcsy will probably replace central bank President Andras Simor when his term ends in March, according to the Index news website.

“Verbal intervention from other government officials has calmed down the market to some extent,” Pasquale Diana, a London-based economist at Morgan Stanley, wrote in a research report today. “We still think that the management changes at the National Bank of Hungary carry significant risks for the currency.”

Investors should sell the forint against the euro as the new central bank leadership may embark on an “aggressive” monetary easing, Guillaume Salomon, a London-based strategist at Societe Generale SA, wrote in e-mailed report today. He predicted the forint may depreciate to as low as 308 per euro.

The new central bank management may allow the forint to weaken “quite significantly” to bolster the economy, Salomon wrote.