Fitch affirms Hungary's sovereign rating at ‘BB+'

Hopes for an improvement of Hungary’s credit rating supported both the forint and government bonds early on Friday and the forint hit a one-month high while 10-year government bond yield fell by 9 basis points. Nevertheless in the afternoon, the forint gave up most gains as Hungary’s Economic Minister Varga warned against overly optimistic expectations and his opinion was confirmed later on in the evening when Fitch released its statement and kept rating unchanged at ‘BB+’ (with a positive outlook). Based on the rating agency the country's upgrade depends on a more stable, predictable economy policy, further decrease in external and public debt. The disappointment (from the Fitch decision), however, seems to be small as the forint remains broadly stable at the time of writing of this note.

Regarding the rest of this week, the regional calendar is almost empty. The most notable exceptions probably are revision of Czech GDP estimate for the third quarter (Friday) and Czech government bond auction on Wednesday. As for the latter, we again expect strong demand for Czech bonds, particularly for a zerocoupon 2Y bond (the Ministry intends to sell up to CZK 8 billion). Let us add that, until at least the end of this year, the Czech MinFin is unlikely to have even the least problems finding investors willing to finance the Czech government (expensive) debt, given the liquidity conditions on the market as well as other circumstances. And the government bond auction scheduled for Wednesday will probably bear this out.

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