Tags: Hungary | Auction | Yields

Hungary Fails to Raise Target Amount at Auction, Yields Soar

Thursday, 05 Jan 2012 09:35 AM

 

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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) in one-year bills, 10 billion forint less than the planned amount, 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 EU and the IMF broke off aid talks last month as the government prepared legislation that threatened to undermine the independence of the central bank. Hungary needs a deal as soon as possible to help maintain market financing 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, 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.

The forint weakened 0.6 percent to an 322.25 per euro at 12:09 p.m. in Budapest, after reaching a record low of 324.24 per euro earlier today.

Urgency

The cost of insuring Hungarian bonds using credit-default swaps climbed to a record 751.6 basis points from 650 basis points on Jan. 3, data provider CMA said. The benchmark BUX stock index fell 2.9 percent today as OTP Bank Nyrt., the country’s largest lender, sank 3.5 percent and Mol Nyrt., the biggest refiner, declined 3.3 percent.

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.

Hungary’s 10-year government bonds fell, lifting the yield 13 basis points to 10.959 percent, the highest since April 2009.

“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.

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