Hungary Faces Highest Yields in 2 1/2 Years at Bill Sale as Forint Weakens
Hungary Faces Highest Yields at Bill Auction in 2 1/2 Years
Balint Porneczi/Bloomberg
The forint weakened 0.5 percent to an all-time low of 322 per euro by 8:55 a.m. in Budapest.
The forint weakened 0.5 percent to an all-time low of 322 per euro by 8:55 a.m. in Budapest. Photographer: Balint Porneczi/Bloomberg
Hungary Faces Highest Yields at Bill Auction in 2 1/2 Years
Balint Porneczi/Bloomberg
The EU and the IMF broke off aid talks last month as the government prepared legislation that threatened to undermine the independence of the central bank.
The EU and the IMF broke off aid talks last month as the government prepared legislation that threatened to undermine the independence of the central bank. Photographer: Balint Porneczi/Bloomberg
Hungary’s Treasury-bill yields rose to the highest level in 2 1/2 years before an auction today as concern the International Monetary Fund and the European Union won’t resume aid talks pushed the forint to a record low.
The government is offering 45 billion forint ($180 million) in one-year bills, data from the Debt Management Agency on Bloomberg show. The yield (GHTB1Y) on existing Treasury bills with the same maturity increased 20 basis points to 8.8 percent yesterday, the highest since July 2009, according to generic prices compiled by Bloomberg. The forint weakened 1.1 percent to an all-time low of 324.07 per euro by 9:54 a.m. in Budapest.
“The auction is going to be a real test of the market,” Guillaume Salomon, a London-based emerging-market strategist at Societe Generale SA, wrote in an e-mailed response to questions from Bloomberg late yesterday. “Concerns abound about the outlook for Hungary and whether any deals with the IMF and EU can be reached. As such, the market will remain very jittery into the auction.”
The EU and the IMF broke off aid talks last month as the government prepared legislation that threatened to undermine the independence of the central bank. Parliament approved the laws on Dec. 30. The EU has no current plans to resume talks, European Commission spokesman Olivier Bailly said on Jan. 3.
Hungary, the EU’s most-indebted eastern member, received its second sovereign-credit downgrade to junk last month when Standard & Poor’s followed Moody’s Investors Service in taking the country out of the investment-grade category on Dec. 21.
Default Risk
The cost of insuring Hungarian bonds using credit-default swaps climbed to a record 733 basis points today from 650 on Jan. 3, data provider CMA said. The benchmark BUX stock index fell 2.9 percent today as OTP Bank Nyrt. (OTP), the country’s largest lender, sank 3.8 percent and Mol Nyrt. (MOL), the biggest refiner, declined 3.6 percent.
“Any disappointment as to the extent of the participation” at the bill auction “will be perceived as another negative sign for the forint,” SocGen’s Salomon said.
Hungary is ready to accept “certain” conditions in its talks with the IMF, state-run news service MTI reported today, citing an interview with Janos Lazar, head of the ruling party’s parliamentary group.
“Compromises, agreements and decisions may be considered which serve the country’s own interests,” Lazar told MTI. “The kind of servile behavior which characterized earlier governments isn’t justified as the revenue and expenditure of this country more or less cover each other.”
Shunning Aid
Hungary, which became the first EU country to receive an IMF-led bailout in 2008, shunned fresh aid in 2010 when Viktor Orban took over as prime minister. Orban reversed his policy last year when the state started struggling to raise funds at debt auctions and the forint plummeted.
Hungary’s 10-year government bonds (GHGB10YR) fell, lifting the yield 44 basis points to 11.295 percent, the highest since April 2009.
“Hungary is in need of IMF help and the current market tensions increase the urgency to get it done soonest possible,” Aurelija Augulyte, a Copenhagen-based emerging-market analyst at Nordea Bank AB, wrote in a research report today, adding that the government may strike an aid deal this quarter.
The central bank may further increase the benchmark rate from 7 percent, the European Union’s highest, in January and February, Augulyte said.
Pricing Debt
“I can easily imagine today’s auction will fail as no one can price that part of the curve,” Gyorgy Cselenyi, Budapest- based head of interest-rate trading at BNP Paribas SA, said in a telephone interview today. “No person on earth can tell how big a rate increase can be expected.”
BNP expects the government to reach an agreement with the IMF and the EU, Michal Dybula, a Warsaw-based economist at the bank, wrote in a research report yesterday.
“However, in the alternative case, market stress will intensify with further rating downgrades, another 200 basis point sell-off in bonds and a rise in the forint to 340 levels against the euro,” Dybula said.
To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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