Forint Hits Month Low as Hungary Bond Sale Raises Less Than Half of Target
Forint Weakens to Month Low
Balint Porneczi/Bloomberg
The forint dropped to a month low.
The forint dropped to a month low. Photographer: Balint Porneczi/Bloomberg
Nov. 28 (Bloomberg) -- Former Hungarian Finance Minister Peter Oszko talks about the country's economy, International Monetary Fund aid and banking taxes. He speaks from Budapest with Francine Lacqua on Bloomberg Television's "Countdown." (Source: Bloomberg)
Hungary raised less than half as much as planned at a debt auction and the forint dropped to a month low on concern the government may not obtain international aid after two credit downgrades to junk status.
The government sold 15 billion forint ($62 million) in bonds, 18 billion forint less than the target, at the auction today as borrowing costs rose to the highest (HUAB5YAY) in more than two years, while the state rejected all bids for three-year notes. The forint depreciated as much as 1.2 percent and traded 0.6 percent weaker at 310.7 per euro, the weakest on a closing basis since Nov. 25, at 5 p.m. in Budapest.
Standard & Poor’s cut Hungary to non-investment grade last week, following a similar downgrade by Moody’s Investors Service a month earlier, after the International Monetary Fund and the European Union suspended bailout talks with Hungary, citing proposed bills curbing the central bank’s independence. Lawmakers are scheduled to vote on the bills tomorrow.
“Hungary can’t finance itself from the market for long unless things begin to normalize,” Antero Atilla, a Copenhagen- based economist at Danske Bank A/S (DANSKE), wrote in an e-mailed response to questions from Bloomberg. “With two downgrades already as kicks below the belt, it will be all the more difficult to climb back on the horse.”
The Debt Management Agency, known as AKK, sold 10 billion forint in 2017 securities at 9.63 percent from 8.72 percent on Dec. 15, and the highest cost since June 2009. The agency raised 5 billion forint in 2022 notes at 9.70 percent from 8.78 percent on Dec. 1 when that maturity was last sold, according to auction results published on Bloomberg. Investors bid for a total 45 billion forint in debt at today’s auction.
‘Policy Issues’
The IMF has yet to decide on returning to Hungary for formal aid talks as the decision depends on the government engaging on key “policy issues,” Reuters reported yesterday, citing an IMF official.
“The chance of an IMF-EU credit deal is receding,” Jozsef Miro and Gergely Gabler, Budapest-based analysts at Erste Group Bank AG, wrote in research reports today. “As long as there is no IMF credit line, the country will need to finance itself from the market and yields may be heading toward double digits after today’s unsuccessful auction.”
The secondary-market yield on the three-year bonds rose 30 basis points, or 0.30 percentage point, to 9.20 percent while the 10-year yield jumped 27 basis points to 9.9 percent.
The forint has lost 14 percent versus the euro since June, the biggest drop among more than 170 currencies tracked by Bloomberg for the second half. Hungary’s currency has declined 10 percent this year, its worst performance since 2003, the year before the country joined the European Union. A weaker forint boosts repayments on foreign-currency debt for the government and households and risks driving banks’ losses.
‘Unorthodox’ Measures
Prime Minister Viktor Orban shunned IMF aid after taking office last year to protect what he called “unorthodox” measures from oversight, including the effective nationalization of $13 billion of private pension-fund assets, extraordinary industry taxes and forcing banks to swallow losses on foreign- currency home loans.
Failure to obtain an international bailout wouldn’t be “so significant,” Orban said in a HirTV interview last week. Orban added that he rejected European Commission President Jose Manuel Barroso’s request to withdraw legislations concerning the central bank.
The central bank bill criticized by the EU and IMF would take away Magyar Nemzeti Bank President Andras Simor’s right to name deputies, expand the rate-setting Monetary Council and add a new vice president. A separate bill would make it possible to demote the central bank president if the institution is combined with the financial regulator.
‘Concrete Steps’
“Early next year, we need to see concrete steps forward in both talks with IMF” and the government refraining from further unorthodox economic measures, Danske’s Atilla said. The credit downgrades and the criticism from the EU and IMF “leave little choice for the government,” Atilla added.
The central bank on Dec. 20 lifted the main two-week deposit rate by a half-point for a second month to 7 percent and signaled it may tighten policy further. Investors in interest- rate derivatives have raised bets that Hungary’s benchmark rate, the EU’s highest, will increase again next year.
Forward-rate agreements fixing three-month interest costs in a month rose to 7.56 percent, the highest in more than two years, from 7.265 percent the day before the S&P downgrade. The contract traded 32 basis points above the three-month Budapest Interbank Offered Rate to which it settles.
To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net
To contact the editor responsible for this story: Andras Gergely at agergely@bloomberg.net
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