The elections through investors’ eyes

Gábor Orbán
Macroeconomic analyst and Head of CEE Fixed Income

With only a few weeks to go before the general elections, many are justifiably asking what they can expect from the financial investments market around the time of the elections, and how it is that the current “growing uncertainty” is not being reflected in the forint exchange rate or in bond yields. The forint has broken through the 265 barrier and is strong as a bull; the CDS (credit default swap) premium, which reflects country risk, is back in pre-Lehman territory, and yields on our government bonds are at levels (on average across all maturities) not seen since well before the crisis. The main reason for the strength in the domestic market is, as has now often been mentioned, positive international sentiment. Investors are once more swimming in liquidity, and for the moment, at least, it appears they do not need to face the true cost of this – the government sector’s global debt problem. Both the Hungarian CDS price and the forint exchange rate have been moving in tandem with the US stock exchange index since the outbreak of the crisis, and they still are, with the forint having strengthened in response to the recent stock-market rally.

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