Hungary's Bond Market Gains on Euro Adoption Bets

Hungary's local bond market is seeing increased demand from foreign investors as they price in a more credible path towards euro adoption under the new government. The central bank has lowered its inflation target to 2.5% from 3%, effective 2028, which adds to expectations of lower long-term yields.

Foreign holdings of forint-denominated bonds reached a post-2019 high, with $13.5 billion inflows so far in 2024 and ownership projected to rise to 34% by August.

Analysts foresee Hungarian long-dated yields declining further if fiscal consolidation materializes and €16 billion in unfrozen EU funds are secured.

ING analyst Peter Virovacz says a credible euro adoption story could push yields lower across 10-year, 15-year, 20-year and longer maturities. He projects the 10-year benchmark yield could fall to 4.9% by year-end.