The cost of insuring Hungary’s sovereign debt against default sharply on Friday to reach a new low for the year as the US Federal Reserve’s Thursday decision to inject liquidity to the system through renewed bond purchases boosted market mood.
According to CMA , a CDS market data monitor in London belonging to the global analyst group S&P Capital IQ, Hungary’s five-year credit default swaps (CDS) fell to around 365bp by late Friday from Thursday’s close of 388.6bp.
A CDS contract valued at 365bp means that the cost to insure every EUR 10m worth of bond exposure against default is EUR 365,000 a year for the benchmark five-year horizon.
Hungary’s CDS spreads were over 750bp in the first week of this year, dropped below 500bp first in May and sank under 400bp in the first week of September.
City analysts say that the drop of CDSs and other risk premia was a key factor in a surprise 26bp Hungarian central rate cut, to 6.75pc, on August 28. The analysts do not rule out another rate reduction at the next rate-setting meeting on September 25 although the majority rather forecast no-change in the light of persistently high inflation.