Hungary Bonds Rally as Inflation Target Cut Sparks Euro Adoption Optimism

Market confidence in Hungary's euro adoption has surged following a surprise inflation target cut from 3% to 2.5%, effective from 2028. The National Bank of Hungary made the announcement on Tuesday, sparking a rally in Hungarian bonds.

The 10-year bond yield fell to 5.64%, below Poland's 6.16% and Romania's 7.29%, marking the first time long-dated Hungarian debt has traded cheaper than A-rated Poland's in years. Foreign holdings of forint-denominated bonds have surged to a 7-year high, reaching 34% of local debt by August.

Viktor Szabo, an emerging-market debt portfolio manager at Aberdeen, said the gap between Hungary and its peers is a clear signal of market confidence in the new policy direction. Hungarian analysts expect the lower inflation target to support the long end of the yield curve directly.