Secondary market yields of benchmark Hungarian government debt dropped and its risk premium widened as German Bund yields fell even more as investors expect further monetary stimulus in the euro zone, however the forint eased further as bets for a base rate cut in Hungary some time early next year are still on the table.
A stronger euro in dollar terms also played against the forint.
Expectations for government moves to underpin the forint by the end of this year, however, put a floor under the currency.
The government and the National Bank of Hungary (MNB) are cooperating to achieve aggressive, cosmetic, reductions in debt-to-GDP ratio at year’s end via a range of cash management, repo, temporary transfer of ownership, buy-back and foreign exchange policy moves, Nomura said in a report.
At the end of October, debt to GDP ratio rose to 83.4% of rolling GDP but importantly around 82.6% of full-year projected nominal GDP. According to Nomura, the Hungarian government earlier expressed the urge to achieve a ratio of 77.0% at year-end while a softer target is to get debt below last year’s print of 79.3%. Nomura analysts believe that to reach the 77.0% target, an exchange rate of euro to forint would need to be fixed “at an unrealistic 277.3”, which “suggests a significant amount of manipulation”.
The forint traded at 245.40 to the dollar, in line with 245.38 late Tuesday. On Wednesday, it moved between 244.89, a five-day high, and 246.40. Last Friday it touched an almost one-month high at 241.95. It was quoted at 255.33 to the Swiss franc, down from 254.65 late Tuesday. Its range on Wednesday was 254.40 to 255.56, a two-week low. It reached a more than one-month high at 252.53 on Friday.
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