Hungary debt insurance costs surge to multi-month high on IMF talks worries
Default insurance costs on Hungary's sovereign debt flirted with the 600bps threshold on Friday, the highest level since late January, driven up by renewed market fears over the prospects of a new IMF/EU financing deal.
According to CMA, a major CDS market data monitor in London, Hungary's five-year credit default swaps (CDS) traded around 598bps late in the session after closing the previous day at 595.65bps.
Friday's CDS pricings on Hungary's sovereign debt compare with spreads of around 520bps a month ago.
A CDS contract valued at 598bps means that the cost to insure every €10 million worth of bond exposure against default is €598,000 a year for the benchmark five-year horizon, an almost €80,000 rise since late March.
Hungary's CDS contracts were trading around 170bps before the collapse of Lehman Brothers, a major US banking group, triggered widespread panic across global markets in late 2008. Hungarian CDS pricings surged above 630bps in March 2009, but were quoted around 255bps as recently as last summer. Their all-time peak was 750bps in early January this year.
London-based economists at Morgan Stanley said on Friday that "markets remain confused by official communication regarding the likelihood of an (IMF/EU) assistance package".
"Taken at face value, these comments are quite positive ... (however) even if (MNB President Andras) Simor's salary is the only issue remaining, it is not clear why the EC and the ECB should give (Hungary) the all-clear".
4cast, a major London-based financial consultancy, said that Hungary's "idiosyncratic increase of credit default protection costs is clearly linked to the persistent delay of the EU/IMF talks".
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