Hungarian bonds gain most in Europe as budget cuts cause riots

The debt returned 3.2% after Gyurcsány survived an October 6 confidence vote in parliament over his proposals to reduce the biggest fiscal deficit in the European Union, according to an index compiled by JP Morgan Chase & Co. “We have increased our positions in Hungary and we're buying,” said Simon Lue-Fong, who helps manage $1.4 billion as head of emerging-market debt at Pictet Asset Management in London. “Fiscal policy has been surprising.” The yield on 5.5% bond due in February 2016 has fallen 59 basis points to 7.24% since the prime minister won approval to cut public spending.

The government predicts the deficit will reach 10% of GDP this year. Italy, by comparison, projects a gap of about 4.8% and Germany a shortfall of 2.6%. The premium investors demand to hold Hungary's 10-year debt over similar-maturity German bunds has narrowed to 3.39% points from a two-year high of 4.10% points on October 4. Magyar Nemzeti Bank, Hungary's national bank, increased the benchmark two-week deposit rate on October 24 to 8%, the most in the European Union, to quell inflation. Central bank President Zsigmond Járai raised benchmark rates five times since June to restrain consumer price growth, which reached a two-year high of 5.9% in September. (Bloomberg)