Hungary Fails to Raise Planned Amount at 12-Month Bill Sale as Yields Jump

Hungary raised less than planned at a Treasury bill sale as yields (HBTB12YA) soared (HBTB12YA) on concern the International Monetary Fund and European Union won’t resume aid talks.

The government sold 35 billion forint ($140 million) of one-year bills, 10 billion forint less than targeted, data from the Debt Management Agency, known as AKK, on Bloomberg show. The average yield rose to 9.96 percent, the highest since April 2009, from 7.91 percent at the last sale of the same-maturity debt on Dec. 22.

The cost of insuring Hungary’s debt through credit-default swaps reached an all-time high and the forint touched a record low versus the euro after aid negotiations stalled because of new laws that threaten to undermine the independence of the central bank. Hungary needs a deal as soon as possible and is ready to discuss the conditions, Tamas Fellegi, the minister assigned to lead the talks, told reporters today.

“Fellegi’s comments are aimed at providing reassurance, but I think the market will adopt a seeing-is-believing approach,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, said in an e-mailed comment. “Market trust in this administration is now at rock bottom levels.”

Hungary’s international aid talks won’t start until the government proves that the new law doesn’t infringe on the independence of the central bank, European Commission spokesman Olivier Bailly told reporters in Brussels today.

Repayments

Hungary will have to make payments on its 20 billion-euro ($26 billion) 2008 bailout this year, with instalments of about 700 million euros due in February and then the same amount at quarterly intervals, plus 300 million euros in June and 500 million euros in each of September and December, according to researcher Capital Economics.

The country also has a 1 billion-euro bond maturing in November and a smaller yen note due in July, according to data on AKK’s website. Against that, the agency has deposits of 2.5 billion euros, according to RBS.

Today’s auction yield result was “poor” given the lack of sufficient demand even 3 percentage points above the central bank’s benchmark rate, Guillaume Salomon, a London-based strategist at Societe Generale SA, wrote by e-mail today.

“As long as there is no EU/IMF aid in store, forint assets will continue to sell-off,” Salomon said.

The forint weakened 0.4 percent to 321.71 per euro at 1:34 p.m. in Budapest, after reaching a record low of 324.24 per euro earlier. Credit-default swaps climbed to 748.4 basis points from 650 basis points on Jan. 3, data provider CMA said.

Policy Reversal

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.

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.

“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.

Hungary plans to stick to its debt auction schedule, the AKK said in an e-mailed statement after the auction today. The agency said it will be “flexible” in its offerings and the accepted amounts to address changes in investor demand.

Stocks Fall

The benchmark BUX stock index fell 2.6 percent as OTP Bank Nyrt., the country’s largest lender, sank 2.6 percent and Mol Nyrt., the biggest refiner, declined 2.7 percent.

Hungary’s 10-year government bonds (GHTB1Y) dropped, lifting the yield 4 basis points to 10.86 percent, the highest since April 2009.

The central bank may further increase the benchmark rate from 7 percent, the EU’s highest, in January and February, Nordea’s Augulyte said.

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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