Hungarian government bonds are attracting increased interest from international investors as expectations grow that the country could move closer to adopting the euro under its new government.
The renewed investor appetite followed the National Bank of Hungary’s decision to reduce its inflation target from 3% to 2.5% from 2028. The central bank said the lower target would help anchor inflation and support efforts to meet the requirements for joining the euro area.
Hungary’s 10-year government bond yield stood at 5.64%, below comparable yields in Poland and Romania. Foreign ownership of forint-denominated government bonds has also risen to its highest level since 2019, reaching 34% by the end of August.
The forint has strengthened about 6% against the euro this year, while investors are watching whether the government can deliver planned reductions in the budget deficit. The deficit is projected at 7.5% of economic output this year, making fiscal consolidation a major test for the country’s euro ambitions.
Hungary could enter the eurozone’s exchange-rate mechanism in 2029 or 2030 and adopt the single currency in 2032, according to a recent economist survey, although the government has not set official dates.
The central bank has meanwhile kept its benchmark interest rate unchanged at 5.5%, citing the need for a cautious approach to monetary policy.
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