- Sale of 3-year note said to be scheduled to go ahead Thursday
- Issuance in yuan would join new sales by South Korea, Mongolia
Hungary edged closer to becoming the first eastern European country to issue yuan-denominated debt, launching the sale of a three-year note that would be the country’s first bond in international markets in more than two years.
The nation mandated the Bank of China Ltd. to organize the sale of Dim Sum bonds, the Debt Management Agency in Budapest said in an e-mailed statement. While the agency said an issue and pricing will depend on market conditions, a sale of a three-year bond is expected Thursday, according to a person familiar with the matter, who is not authorized to speak publicly and asked not to be identified.
Hungary wants to diversify its funding and boost trade ties with Asia by tapping the offshore yuan markets following similar sales by South Korea and Mongolia last year. While the nation has stayed away from international markets since a $3 billion sale in March 2014 as it reduced holdings of foreign-currency debt, low interest rates at home are pushing Hungary to put aside concerns about exchange-rate volatility in China.
"Hungary is looking to expand its financing options as foreigners are reluctant to buy forint debt at low yield levels, while domestic investors are fully stocked with the notes," said Viktor Szabo, a money manager who helps oversee $11 billion in emerging-market debt at Aberdeen Asset Management in London. "With the yuan’s exchange-rate history, demand for the note shouldn’t be taken for granted." Szabo said Aberdeen isn’t planning to buy the notes.
Hungary is plunging into the Dim Sum market as sales of international yuan debt fell to the lowest in five years in the first quarter, according to Bloomberg league tables. Fluctuations after China devalued its currency in August last year has deterred issuers from selling notes in yuan. Implied volatility, a measure of expected exchange-rate swings fell to a five-month low on Tuesday.
Poland, which was selling 20-year euro-denominated bonds Wednesday, has also looked at issuing in the Chinese currency and plans to vet interest for a sale of as much as $500 million on the country’s domestic market this quarter, Deputy Finance Minister Piotr Nowak said on April 1.
The reopening of Dim Sum bond issuance is a sign of improving sentiment in the yuan," Said Angus To, a senior research analyst of ICBC International. "We have been seeing Dim Sum bond price rebounding since mid February and this is now being translated into a revival in issuance."
The yield on junk-rated Hungary’s last issue, a dollar-denominated bond due 2019, rose two basis points to 2.7 percent by 5:49 p.m. in Budapest. That’s largely unchanged from a year earlier and 179 basis points above comparable U.S. Treasuries. Hungary’s Dim Sum issue will be conducted under English law, the debt agency said.