Hungary may be able to sell Eurobonds before agreeing on an International Monetary Fund rescue loan because investor appetite for risk has increased, according to ING Groep NV.
Hungary may follow peers such as Ukraine in tapping foreign debt markets after the European Central Bank announced an unlimited bond-buying program, the Federal Reserve started a third round of quantitative easing and the Bank of Japan (8301) expanded its asset-purchase fund by 10 trillion yen ($126 billion), Simon Quijano-Evans, ING’s London-based head of emerging-market research for Europe, the Middle East and Africa, said today in response to e-mailed questions.
“The backdrop for a Hungarian Eurobond issue is very conducive,” Quijano-Evans wrote. It’s “an opportune time now for the sovereign, given the low level in yields and the substantial liquidity pledges” from the three central banks.
Hungary requested aid in November as its credit rating was cut to junk. Negotiations for a loan of about a 15 billion euros ($19 billion) were delayed multiple times because of Prime Minister Viktor Orban’s resistance to adhere to legal and economic conditions set by the IMF and the European Union.
While yields on Hungary’s international bonds are the lowest in more than a year, the government ruled out a foreign- currency debt issue until a bailout deal is in place. Hungary needs the IMF to show flexibility in loan negotiations, chief negotiator Mihaly Varga said, a sign that easing market pressure may reduce the country’s resolve to obtain aid.
The yield on Hungary’s benchmark 2019 euro-denominated bond fell 2 basis points to 5.99 percent as of 2:16 p.m. in Budapest, the lowest since June 2011.
The latest round of IMF talks stalled after Orban on Sept. 6 rejected cutting pensions and scrapping an extraordinary bank tax as well as other measures to reduce the budget deficit and boost growth, which he said were the IMF’s conditions.
“If the government is able to initiate a successful chain of Eurobond auctions, while increasing the predictability of policy, then the need for a new loan program diminishes,” Quijano-Evans wrote.
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