Hungarian Yields Jump Most in 17 Months on Rates: Budapest Mover

Hungarian bond yields increased the most in 17 months and the forint appreciated on speculation Hungary’s central bank may have to halt interest-rate cuts amid a slump in global demand for riskier assets.

Yields on Hungary’s benchmark 10-year bonds rose 32 basis points, or 0.32 percentage point, to 6.39 percent at 5 p.m. in Budapest, the biggest daily jump since January 2012. The forint strengthened 0.4 percent to 297.99 against the euro. The government’s Debt Management Agency sold less debt than planned at a Treasury bill sale today as borrowing costs soared to a two-month high.

Hungary’s inflation rate was 1.8 percent in May, below the 1.9 percent forecast in a Bloomberg survey, and within 0.1 percentage point of a 39-year low reached in April, data from the statistics office in Budapest showed today. Emerging-market stocks tumbled to a nine-month low and currencies weakened amid concern the U.S. Federal Reserve will reduce stimulus.

“The Monetary Council, however, is likely to turn cautious on the assessment of the global risk environment, given the rising pressure on EM currencies and local yields,” Eszter Gargyan, a Budapest-based economist at Citigroup Inc., wrote in an e-mailed report today.

The Magyar Nemzeti Bank reduced its benchmark rate to a record 4.5 percent on May 28 in a 10th consecutive 25 basis point reduction. The easing cycle may reach the bottom at 4 percent in July, according to Zoltan Arokszallasi and Orsolya Nyeste, Budapest-based economists at Erste Group Bank AG.

Ending Easing

“The overall inflation picture creates room for continuation of the ongoing rate reduction cycle,” Arokszallasi and Nyeste wrote in a research report today. “However, recent changes on the market, including sharp increases in bond yields and the weakening of the forint, indicate that the end of rate cuts is not far off now.”

The debt agency sold 40 billion forint ($177 million) in 3-month bills today, 10 billion less than planned. The average yield was 4.38 percent, the highest since April 9, according to data from the agency on Bloomberg.

The forint’s three-month implied volatility, a measure of expected moves in the exchange rate used to price options, was 11.5 percent, within 5 basis points of an 11-month high reached yesterday, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.