Hungary Central Bank Widens Debt Push in First Eurobond Purchase

Hungary’s central bank bought government Eurobonds on the secondary market for the first time ever, expanding efforts to reduce the country’s reliance on foreign financing.

The National Bank of Hungary purchased the equivalent of 82.6 billion forint ($295 million) in foreign-currency notes last month, data on its website show. That’s the first time the monetary authority has purchased Eurobonds since 1998, which is as far back as the figures go.

Policy makers are assisting government efforts to reduce the economy’s vulnerability by trimming the foreign-currency share of debt this year to 32 percent from 37 percent at the end of 2014. The lender said it may at a later date sell the notes at market price to the Debt Management Agency, which plans to buy back as much as 900 million euro ($1 billion) in Eurobonds maturing next year.

The purchases mostly affected shorter maturities to “lower the short-term external debt trajectory,” the central bank said in an e-mailed response to questions. They are part of the bank’s self-financing program aimed at increasing the share of domestic forint notes in government debt, it said.

The central bank is buying the Eurobonds as an “agent,” the debt-management authority said in an e-mailed response to questions. Only a smaller part of the 900 million euro repayment plan will be assigned for Eurobonds with a larger share earmarked for foreign-currency loans, it said.

The monetary authority has taken several steps to lower Hungary’s borrowing costs and reduce foreign financing since President Gyorgy Matolcsy, a former economy minister and ally of Premier Viktor Orban, took charge in 2013. In June, the bank announced changes to its policy framework to channel funds from its main deposit instrument into government debt.

Hungary’s $2 billion bond maturing March 2024 rose to a two-month high on closing basis, taking the yield six basis points lower to 4.01 percent by 3:20 p.m. in Budapest.