The financial ratings agency Moody's has proceeded today to downgrade the sovereign debt of Hungary to junk status (Ba1 with an negative outlook) down one notch. Competing rating agency S&P held its bazooka and kept the rating of Hungarian debt constant. The pressure on Hungary to seek a joint IMF/EU deal is mounting on the shoulders of Viktor Orban.
No rest for the wicked
After the failed German auction which left the Bundesbank with more than 35% of its bonds on the table, and which pushed up the yields to 2.28%. As the 10 year yields bunds are currently the benchmark rate for all European Debt and are perceived as a flight to quality, all other European debt goes down along with it.
Hungary is particularly gunned down by bond vigilantes, because of their refusal to accept IMF/EU emergency lending and because the relationship with the banking sector has not been the most fruitful one. Their 10 year yield shoot up to 9.56%, up 73 basis points.
The USD/HUF is still bleeding at the level of 235.75, up 13% since the beginning of the year. I take it that the Hungarian people don't want to add more debt to current public debt, but an IMF/EU accord at substantial lower rates (towards the 4-5% level) would certainly be appropriate.
What is your take on this ? What should the Hungarian government do to stop the bleeding ?