Hungary debt insurance cost drops to 18-month low as US fiscal pact boosts sentiment

MNB

Default insurance costs on Hungary's sovereign debt dropped to a 18-month low on Thursday, reflecting a favourable market fall-out from the last-minute deal in the US Congress to avoid the "fiscal cliff", a series of dramatic tax hikes and spending cuts pre-set by Congress in August, 2011, which analysts had feared would have driven the US economy back into recession.

According to CMA, a major CDS market data monitor in London, part of S&P Capital IQ, Hungary's five-year credit default swaps (CDS) traded around 260bps late in the session, a low not seen since July 2011.

Thursday's CDS pricings on Hungary's sovereign debt compare with record highs of over 750bps exactly a year ago.

A CDS contract valued at 260bps means that the cost to insure every EUR 10 million worth of sovereign FX bond exposure against default is now around EUR 260,000 a year for the benchmark five-year maturity, a fall of almost half a million EUR since the beginning of last year.

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