Analysis-Hungarian bond bulls bet on euro path as central bank cuts inflation target

In a recent shift, the Hungarian central bank has lowered its inflation target to 2.5% from 3%, effective from 2028, signaling its commitment to adopting the euro, according to Reuters. This decision has attracted foreign investors, particularly those holding forint-denominated bonds, who have seen a surge in their holdings since Hungary's center-right government took power, ending Viktor Orban's 16-year rule.

The 10-year bond now trades at a yield of 5.64%, lower than its peers in Poland and Romania, reflecting the increased appeal of Hungarian bonds. Analysts project that yields could further decrease if Hungary successfully reduces its deficit and meets the requirements for euro adoption, which could occur as early as 2029 or 2030, based on a Reuters survey of economists.

While there are short-term risks, such as energy price fluctuations, the overall sentiment favors a long-term alignment with the euro area.