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Hungary Raises More Than Target at Auction of Forint-Denominated Bonds
Hungary raised more funds than planned at its first auction of debt maturing in three or more years since the breakdown of talks with international lenders, a sign the country can meet its financing needs for now.
The government raised 57.5 billion forint ($265.4 million) compared with a target of 50 billion forint, according to auction results on the debt management agency’s Bloomberg page. Investors submitted bids worth 147.3 billion forint. Yields on three-year debt rose while five and 15-year bond yields dropped, compared with previous auctions.
“It appears the market showed its trust in Hungary, which is absolutely reassuring,” said Istvan Horvath, who helps manage $3.7 billion at the Budapest investment unit of KBC Groep NV. “The auction results support the government’s stance that Hungary can rely solely on market financing for now.”
The International Monetary Fund and the European Union ended talks with the government on July 17 without endorsing Prime Minister Viktor Orban’s fiscal plans. Hungary wants to return to economic “self-rule” to jumpstart its economy, Orban said on July 23. Standard & Poor’s and Moody’s Investors Service said last week they may downgrade the country’s debt rating.
“The key takeaway from today’s sale is that the debt management agency is trying to front-load its issuance wherever possible given that it has zero clarity around fiscal policy in the second half,” said Peter Attard Montalto, an economist at Nomura Plc in London.
Yields
The government today sold 20 billion forint of bonds due in 2014 at an average yield of 7.13 percent, compared with 6.92 percent on July 15, according to auction results on the debt management agency’s Bloomberg page. It sold 22.5 billion forint of 2016 notes at 7.14 percent versus 7.22 percent, also on July 15, and 15 billion forint of 2023 bonds at 7.09 percent compared with 7.10 percent on May 6.
The yield on benchmark 6.75 percent 2013 bonds on the secondary market dropped nine basis points to 6.88 percent at 12:32 p.m. in Budapest. The yield rose to 7.28 percent on July 19, its highest since Jan. 5, two days after loan talks ended.
“Today’s auction will be a barometer of investors’ sentiment toward Hungary,” said Gyorgy Barta, a Budapest-based economist at Italy’s Intesa Sanpaolo, before the results were issued.
‘Temporary Breather’
At a sale of three-month Treasury bills this week, the government raised 5 billion forint more that the 45 billion forint planned.
“The government has been given a temporary breather but the IMF-EU story is far from over,” Barta said. Uncertainty is likely to prevail on domestic markets until the government unveils its fiscal plans for 2011, expected after municipal election on Oct. 3, he said.
The forint is the worst-performing currency against the euro among emerging European currencies in the past three months, having lost 6.1 percent since April 29. The currency traded lost 0.3 percent to 283.38 per euro today, compared with 282.66 late yesterday.
On July 19, the forint fell to the lowest since April 2009. Central bank President Andras Simor said interest rates may rise in case of a sustained increase in risk premiums. S&P on July 23 lowered the outlook on Hungary’s debt to “negative,” saying it may cut the nation’s credit rating to junk from investment grade.
To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net.
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