“Markets have been unmoved by increasing protests against the [Hungarian] government’s new education policy, which has been seen as specifically aimed at shutting down the Central European University,” the Nomura analysis says. Nomura sees a likelihood of the government finally amending the “legislation slowly under domestic and external EU pressure; most likely in our view it was aiming to intimidate universities rather than explicitly shut the institution down”.

Nomura mentions that the current government has applied “similar tactics” in relation to the advertising tax and “did force the closure of one newspaper (Népszabadság) in October of last year”. The analysis says that what Prime Minister Viktor Orban calls an “illiberal democracy” appears to be “quite stable”, as the opposition is “so fractured” that “is gaining no traction”, while governing Fidesz appears to retain a steady lead of 15-20 pp.

“Markets are largely ignoring real economy or political issues and focusing on the real rate narrative that results from MNB unorthodox policy, but also a view that such a steep bond curve (over 300 bps for 2s10s) is more than adequate compensation for any risk,” the Nomura analysis concludes.