Default insurance costs on Hungary’s sovereign debt dropped below 300 bps on Wednesday, its lowest pricing since February, following a 25 bps policy rate cut by the central bank which was in line with market consensus. According to CMA, a major CDS market data monitor in London, part of S&P Capital IQ, Hungary’s benchmark five-year credit default swaps (CDS) traded around 298 bps late in the session, a drop of almost 100 bps from spreads of around 395 bps seen early this month. A CDS contract valued at 298 bps means that the cost to insure every €10 million worth of sovereign FX bond exposure against default is now around €298,000 a year for the benchmark five-year maturity, a fall of nearly €100,000 from mid-prices seen in early April. Wednesday’s fall in Hungary’s CDS spreads follows an already substantial drop after the MNB defied worries over a potentially aggressive acceleration of its monetary easing cycle on Tuesday by cutting its base rate to 4.75% from 5.00%, maintaining the 25 bps pace it had adopted over the previous eight months.
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