Economy 16 April 2013, 2:55pm

Hungary forint firms, CDS spread rises

Portfolio

Hungary’s forint waddled though the highly negative global sentiment with a fairly small depreciation yesterday and as international mood turned brighter the HUF has also gathered strength versus the euro. The details of Hungary’s Convergence Programme unveiled in the morning, however, sparked a transitional easing in EUR/HUF to around 296. Concurrently, one of Hungary’s key risk indicators rose, whereas the yield on the 10-year HUF benchmark bond dipped to a nearly eight-year low. The average yield at the Government Debt Management Agency’s (ÁKK) 3-month discount T-bill auction was set to a new record low.

Today’s key market movers were the following:

Risk appetite has apparently increased on global financial markets;
This could be considered as a natural correction after a major plunge late on Monday;
Gold rebounded more than 2.5% after falling to two-year lows, key stock indices gathered momentum even though Germany’s ZEW index turned out weaker than expected; Japan’s yen and the USD are falling again;
According to the Convergence Programme unveiled by Hungary’s Economy Minister the cabinet has not pencilled in additional fiscal adjustment measures, insisting that the deficit target will be reached even without these, but this way it cannot be guaranteed that the EU will abrogate the EDP against the country;
Moreover, the government has upped its 2014 budget deficit target and plans unusually small reserves for the election year;
These could be taken negatively by market players which might have contributed to the forint’s weakening.

Gov’t security yields dropped further - 14:51

In parallel with the forint’s firming in the morning government security yields (more precisely those in the 10-15-yr segment) dropped sharply today. According to ÁKK reference yield data, yields here came 12-13 bps lower, pushing the yield on the 10-yr benchmark bond to 5.56%, close to an 8-yr low.

Default risk rises - 14:33

Hungary is once again on the list of countries with the largest increase in CDS spreads, according to data by CMA, which show a 12bp rise of the country’s 5-yr CDS spread to 324 basis points. (The ranking must have been made around noon when the forint was still at weaker levels.)

HUF back south of 295 - 13:29

The forint has by now worked off its one unit easing that came about after Economy Minister Mihály Varga announced the key details of the updated Convergence Programme and is back below 295 versus the euro on the interbank market. Meanwhile, the USD depreciated markedly to the EUR since the morning in parallel with the rise in risk appetite, as a result of which EUR/USD rose to over 1.31. Consequently, USD/HUF is already south of 225 (at around 224.70), which marks the strongest level for the forint in almost two weeks. The forint is currently hovering around 242.30 to the Swiss franc, close to a new five-week high. Not only the HUF, but also Romania’s leu strengthened this morning, whereas the CZK and the PLN were virtually flat against the EUR.