Hungary Raises Offering at Government Bond Auction as Borrowing Costs Jump

Hungary raised more debt than planned at a sale of government bonds today as borrowing costs jumped on concern Europe’s sovereign debt crisis will spread and the country’s budget won’t be sustainable.

The government sold 51 billion forint ($242 million) in bonds due in 2014, 2016 and 2020, 11 billion forint more than initially planned, according to auction results on the debt management agency’s Bloomberg page. Yields on the auctioned maturities rose between 79 basis points and 94 basis points compared with yields at the last auction two weeks ago.

Bond yields have risen across Europe since Hungary last sold government bonds on Nov. 18 as Ireland’s bailout fueled speculation that more countries may seek aid. The central bank in Budapest on Nov. 29 unexpectedly raised its benchmark interest rate, citing accelerating inflation and the country’s worsening risk assessment.

The state raised 25 billion forint in 2014 bonds at an average yield of 7.9 percent, compared with 6.96 percent, 13 billion forint of debt maturing in 2016 at 7.93 percent versus 7.17 percent and 13 billion forint of 2020 notes at 8.08 percent compared with 7.29 percent. The agency received bids totaling 165.7 billion forint compared with 186.9 billion.

“This was a very strong auction with demand boosted by an improvement in global sentiment,” Gyorgy Cselenyi, head of interest-rate trading at BNP Paribas SA in Budapest, said in a phone interview. With the start of the new U.S. financial year on Dec. 1, liquidity on markets rose and American investors “appear to be opening long emerging market positions,” he said.

Hungary raised more debt than planned at the last bond sale in November, when bids were more than four times the offered 45 billion forint. The government raised 68.5 billion forint of at the auction and subsequent non-competitive offering, selling bonds maturing in 2014, 2016 and 2020 as costs rose.

The debt management agency failed to sell planned amount in a sale of three-month Treasury bills on Nov. 30 and accepted no bids at a buyback auction yesterday.

‘Unsettled’

The Magyar Nemzeti Bank unexpectedly increased its two-week deposit rate to 5.5 percent from 5.25 percent after holding borrowing costs unchanged at a record low for six months. That move “unsettled” Hungarian debt pricing and caused some investors to adopt a “wait-and-see” attitude, Laszlo Andras Borbely, the Debt Management Agency’s deputy director, said in a phone interview yesterday.

“The market hasn’t yet settled after the rate increase, pricing has become more uncertain, since it’s unclear what the central bank’s future policy steps will be,” Borbely said.

The rate decision affected bond demand, causing the government to cut the planned amount in a debt sale Nov. 30 and to accept no bids at a buyback auction yesterday, he said.

To contact the reporters on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net; Balazs Penz in Budapest at bpenz@bloomberg.net

To contact the editors responsible for this story: Willy Morris at wmorris@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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