Identifier
Created
Classification
Origin
09BUDAPEST319
2009-04-24 13:01:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Budapest
Cable title:
GOVERNMENT RESUMES REGULAR BOND AUCTIONS
how-toVZCZCXRO8239 RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG DE RUEHUP #0319 1141301 ZNR UUUUU ZZH R 241301Z APR 09 FM AMEMBASSY BUDAPEST TO RUEATRS/DEPT OF TREASURY WASHDC RUEHC/SECSTATE WASHDC 4114 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS BUDAPEST 000319
SENSITIVE
SIPDIS
DEPT FOR EUR/CE, EB/OMA, INR/EC; USDOC FOR SAVICH; TREASURY
FOR ERIC MEYER, JEFF BAKER, LARRY NORTON; USEU FOR HAARSAGER
E.O. 12958: N/A
TAGS: EFIN PGOV ECON HU
SUBJECT: GOVERNMENT RESUMES REGULAR BOND AUCTIONS
REF: A. BUDAPEST 42
B. BUDAPEST 275
BOND AUCTIONS RESUME
UNCLAS BUDAPEST 000319
SENSITIVE
SIPDIS
DEPT FOR EUR/CE, EB/OMA, INR/EC; USDOC FOR SAVICH; TREASURY
FOR ERIC MEYER, JEFF BAKER, LARRY NORTON; USEU FOR HAARSAGER
E.O. 12958: N/A
TAGS: EFIN PGOV ECON HU
SUBJECT: GOVERNMENT RESUMES REGULAR BOND AUCTIONS
REF: A. BUDAPEST 42
B. BUDAPEST 275
BOND AUCTIONS RESUME
1. (U) On April 16, the Hungarian Debt Management Agency
(AKK) announced it would restart regular long term government
bond auctions. Regular auctions were suspended last October
when demand for Hungarian government securities dropped
significantly, contributing to Hungary's need to negotiate a
stabilization package with the EU and IMF. Since then,
Hungary has relied on the IMF credit facility to finance
maturing government debt.
DEMAND HEALTHY AT FIRST AUCTION
2. (U) The first auction under the new plan took place on
April 23, with AKK offering HUF 5 billion (USD 22 million)
each of 3, 5, and 10-year bonds. Demand for the securities
was considered healthy, particularly for the 3-year and
10-year bonds, which received HUF 18.4 billion and HUF 20.9
billion worth of bids respectively. Bids of HUF 13.6 billion
were received on the 5-year bonds, and AKK accepted HUF 4.5
billion. Based on this level of demand, AKK Deputy CEO
Laszlo Borbely announced AKK would definitely proceed with
regular auctions every two weeks, most likely at the same
levels.
A POSITIVE SIGN, BUT NOT OUT OF THE WOODS
3. (SBU) Restarting regular bond auctions is necessary for
Hungary to resume financing its own debt, and these results
suggest that investor confidence is beginning to improve.
Unicredit analyst Martin Blum agrees, noting that "the
primary market backdrop for CEE markets is gradually
improving." On the other hand, Hungary's risk premium kept
yields high (accepted bids ranged between 10.39 and 10.80
percent),and it is not certain whether there will be
sustained demand at the twice monthly auctions. AKK Deputy
CEO Laszlo Borbely admits that "we do not think everything is
all right now in the government bond market", noting that
"there is still no strong buying interest in the market" from
domestic or non-resident investors. In addition, Unicredit's
Blum points out that the size of the auction is relatively
small (approx. USD 65 million),and will do little by itself
to help Hungary meet its external financing requirements.
4. (SBU) During an earlier meeting, AKK Managing Director
Laszlo Buzas told us that there was a concern that waiting
too long to resume auctions could result in the primary
dealer market drying up. On the other hand, if demand is
insufficient, and if auctions are undersubscribed, yields
will rise further and AKK may be forced to once again halt
regular auctions, which would be interpreted negatively by
markets.
5. (SBU) Comment. The resumption of regular auctions and the
relatively strong level of demand is a positive development,
particularly in light of the negative news in recent months
in Hungary's fixed income market. Last October and November
saw a massive sell-off of bond holdings by non-resident
investors (who decreased their bond holdings by 25
percent)(ref A),and Hungary's debt rating was recently
downgraded by credit rating agencies to the lowest investment
grade (ref B). We are hopeful that demand remains relatively
strong at subsequent auctions, but believe that a further
deteriorating global or domestic economic outlook could
dampen demand for emerging market securities in general, and
Hungarian government bonds in particular. We also see a risk
that further downgrades of Hungary's credit rating could
depress demand and force many institutional investors to sell
their positions. End comment.
Levine
SENSITIVE
SIPDIS
DEPT FOR EUR/CE, EB/OMA, INR/EC; USDOC FOR SAVICH; TREASURY
FOR ERIC MEYER, JEFF BAKER, LARRY NORTON; USEU FOR HAARSAGER
E.O. 12958: N/A
TAGS: EFIN PGOV ECON HU
SUBJECT: GOVERNMENT RESUMES REGULAR BOND AUCTIONS
REF: A. BUDAPEST 42
B. BUDAPEST 275
BOND AUCTIONS RESUME
1. (U) On April 16, the Hungarian Debt Management Agency
(AKK) announced it would restart regular long term government
bond auctions. Regular auctions were suspended last October
when demand for Hungarian government securities dropped
significantly, contributing to Hungary's need to negotiate a
stabilization package with the EU and IMF. Since then,
Hungary has relied on the IMF credit facility to finance
maturing government debt.
DEMAND HEALTHY AT FIRST AUCTION
2. (U) The first auction under the new plan took place on
April 23, with AKK offering HUF 5 billion (USD 22 million)
each of 3, 5, and 10-year bonds. Demand for the securities
was considered healthy, particularly for the 3-year and
10-year bonds, which received HUF 18.4 billion and HUF 20.9
billion worth of bids respectively. Bids of HUF 13.6 billion
were received on the 5-year bonds, and AKK accepted HUF 4.5
billion. Based on this level of demand, AKK Deputy CEO
Laszlo Borbely announced AKK would definitely proceed with
regular auctions every two weeks, most likely at the same
levels.
A POSITIVE SIGN, BUT NOT OUT OF THE WOODS
3. (SBU) Restarting regular bond auctions is necessary for
Hungary to resume financing its own debt, and these results
suggest that investor confidence is beginning to improve.
Unicredit analyst Martin Blum agrees, noting that "the
primary market backdrop for CEE markets is gradually
improving." On the other hand, Hungary's risk premium kept
yields high (accepted bids ranged between 10.39 and 10.80
percent),and it is not certain whether there will be
sustained demand at the twice monthly auctions. AKK Deputy
CEO Laszlo Borbely admits that "we do not think everything is
all right now in the government bond market", noting that
"there is still no strong buying interest in the market" from
domestic or non-resident investors. In addition, Unicredit's
Blum points out that the size of the auction is relatively
small (approx. USD 65 million),and will do little by itself
to help Hungary meet its external financing requirements.
4. (SBU) During an earlier meeting, AKK Managing Director
Laszlo Buzas told us that there was a concern that waiting
too long to resume auctions could result in the primary
dealer market drying up. On the other hand, if demand is
insufficient, and if auctions are undersubscribed, yields
will rise further and AKK may be forced to once again halt
regular auctions, which would be interpreted negatively by
markets.
5. (SBU) Comment. The resumption of regular auctions and the
relatively strong level of demand is a positive development,
particularly in light of the negative news in recent months
in Hungary's fixed income market. Last October and November
saw a massive sell-off of bond holdings by non-resident
investors (who decreased their bond holdings by 25
percent)(ref A),and Hungary's debt rating was recently
downgraded by credit rating agencies to the lowest investment
grade (ref B). We are hopeful that demand remains relatively
strong at subsequent auctions, but believe that a further
deteriorating global or domestic economic outlook could
dampen demand for emerging market securities in general, and
Hungarian government bonds in particular. We also see a risk
that further downgrades of Hungary's credit rating could
depress demand and force many institutional investors to sell
their positions. End comment.
Levine