Hungary Fails to Meet Debt-Sale Goal as Interest-Rate Bets Drive Up Yields

Hungary failed to raise the planned amount of debt at an auction today as growing concern the central bank may raise interest rates dampened investor demand.

The state debt management agency sold 35 billion forint ($158 million) of 12-month Treasury bills, 15 billion forint less than planned, at an average yield of 5.82 percent, up from 5.44 percent at a similar auction on Aug. 19. It received 63.4 billion forint in bids, compared with 80.9 billion forint at the previous sale, according to the agency’s Bloomberg page.

“Investors’ sense that shorter-term Hungarian debt as a safe bet has evaporated as fears grow that the central bank will raise interest rates,” Andras Sovany, bond trader at ING Groep NV in Budapest said. “The market seems to be re-pricing the 1- 2-year segment due to the interest-rate outlook.”

The Magyar Nemzeti Bank left its benchmark interest rate unchanged at 5.25 percent for a fourth month in August and warned that it may raise the cost of borrowing if inflation and debt risks worsen further.

Hungary’s risk assessment deteriorated following the collapse of talks on a review of the country’s 20 billion-euro ($26 billion) bailout loan with the International Monetary Fund and European Union in July.

The forint has lost 1.2 percent against the euro in the past month, compared with gains of 4.5 percent for the Czech koruna and 0.35 percent for the Polish zloty. Hungary’s credit- default swaps, contracts that protect against default, averaged 329 basis points in the period versus 88 basis points for the Czech Republic and 135 for Poland.

To contact the reporter responsible for this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

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