Hungary Fails to Raise Target Amount at Auction, Yields Soar
January 05, 2012, 9:09 AM ESTBy Andras Gergely and Edith Balazs
(Updates with debt agency comment in 11th paragraph.)
Jan. 5 (Bloomberg) -- Hungary raised less than planned at a Treasury bill auction as yields soared 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 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.”
The forint weakened 0.3 percent to an 321.23 per euro at 12:30 p.m. in Budapest, after reaching a record low of 324.24 per euro earlier today. Credit-default swaps climbed to a record 751.6 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 plans to stick to its debt auction schedule, the state debt management agency, known as AKK, said in an e-mailed statement after the auction today, adding that it will be “flexible” in its offerings and the accepted amounts to address changes in investor demand.
Hungary will have to make payments on its 20 billion-euro ($26 billion) 2008 bailout this year and it 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 AKK has deposits of 2.5 billion euros, according to RBS’s Ash.
Urgency
“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 benchmark BUX stock index fell 2.7 percent today as OTP Bank Nyrt., the country’s largest lender, sank 3.5 percent and Mol Nyrt., the biggest refiner, declined 2.7 percent.
Hungary’s 10-year government bonds dropped, lifting the yield 18 basis points to 11.005 percent, the highest since April 2009.
--Editors: Gavin Serkin, Peter Branton
--Editor: Gavin Serkin
--Editors: Peter Branton, Gavin Serkin
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
