Erste: Hungary bond yields likely to ease by year end

Hungarian bonds will probably rally, sending yields lower, until the end of this year because the government has committed to its budget-deficit targets, reports Bloomberg quoting Erste Group Bank AG.

“We view the government’s commitment to the deficit target a positive sign and forecast bond yields to ease from current levels until the year-end,” analysts at Erste including Zoltán Árokszállási in Budapest wrote in a research report today.

The government bonds maturing in June 2022, the most actively traded in Hungary in the last six months, rallied, pushing the yield eight basis points, or 0.08 percentage point, lower to 7.41% as of 10:00 a.m. in Budapest. The forint depreciated 0.1% to 272.1 per euro.

Hungary wants a budget shortfall of 2.5% of gross domestic product next year, after a gap of 4.3% in 2010 and a surplus this year because of the effective nationalization of private-pension funds and temporary taxes on energy, financial, retail and telecommunication industries.

The debt agency, known as ÁKK, may “soon” start using the funds acquired from the pension portfolios to buy back government bonds, “which could provide further support” to securities of “short” and “medium” maturities, Gyula Tóth, a Vienna-based analyst at UniCredit SpA, wrote in a research report today.