Hungarian government bonds extended the world’s biggest rally in the past week after Prime Minister Viktor Orbán’s pledge to meet budget targets added to bets the central bank will cut interest rates, reports Bloomberg.
“Hungarian government bonds had a spectacular day yesterday,” BNP analysts led by Bartosz Pawlowski in London said in a research report today. “We think there’s more to go because a strong commitment of the government to deliver on its targets will probably amplify bets on interest rate cuts.”
The yield on government notes maturing in November 2017 fell three basis points, or 0.03 percentage points, to 6.983%. That compared with 7.797% on August 5 and marked the lowest yield since June 15.
“Against this kind of backdrop, the National Bank of Hungary may be unable to lower interest rates, despite slower growth and a reasonably benign inflation environment,” the Morgan Stanley analysts said. “This is because the risk environment remains a key variable.”
The Magyar Nemzeti Bank left borrowing costs at 6% for a sixth month on July 26 as focus shifted from inflation to the impact of Europe’s debt crisis on the economy. Policy makers said they planned to leave borrowing costs unchanged for an “extended period.”