Hungarian debt unattractive to investors, CDS highest in 6 months
Thursday, 04 August 2011 14:02
Hungary was unable to meet debt issue plans on Tuesday as the HUF 40 billion tranche of 3-month zero-coupon T-bills on offer was lowered to HUF 27 billion by the State Debt Management Agency. Yields rose only slightly, however demand was slack; the agency received HUF 47 billion in bids for the lot. Hungary's State Debt Management Agency offered HUF 40 billion worth of 3-month treasury bills (D111109) in an auction. Demand was very low with a debt-to-cover ratio of only 1.17, something unprecedented since November 2010 in the case of 3-month T-bills. The amount was decreased in response to weak demand. Yields on accepted bids ranged from 5.64% to 5.84%, averaging 5.72%. This is only 5 bp higher than the average yield of the previous auction two weeks ago.
Meanwile the cost of insuring Hungarian debt against default rose to levels unseen since late January on Wednesday after Hungarian local governments asked for a delay on principal payments on about HUF 600 billion ($3.18 billion) of Swiss franc loans, Reuters reports. Hungary's five-year credit default swaps rose 17 basis points to 338 bps, according to data from Markit. Hungary's local councils have outstanding debt of HUF 1,200 billion of which about HUF 600 billion was issued in the form of bonds in 2006-2008, but mainly in 2007, MOSZ chairman György Gémesi told Hungarian wire agency MTI. The Hungarian Association of Local Governments (MOSZ) has asked Prime Minister Viktor Orbán in a letter to intervene with banks in the interest of achieving a delay. "Informal talks have confirmed that lending banks are open to such an agreement with local councils," the MOSZ said in the letter. Most of the bonds had 20-year runs with three-year grace periods, thus principal payments will be due on many this year, he said. Many of the bonds were denominated in Swiss francs, and that currency's "brutal" exchange rate to the forint will require many local governments to seek assistance to avoid defaulting, he explained. About 85% of municipal bonds were denominated in foreign currency at the end of March, latest National Bank of Hungary data show. About 89% of the bonds were subscribed by domestic banks. The rest were held by foreign entities. "Credit markets have not particularly appreciated the...move which would be tantamount to a restructuring," Reuters citied Tim Ash, head of CEEMEA research at RBS, as saying in a client note. "The move is perhaps weighing on sentiment as this somehow implies a lack of willingness to pay on the part of some public sector entities."
Source: Reuters, Portfolio.hu, Budapest Business Journal