Less than a week after a fully failed 3 Year Hungarian bond auction (in which all bids were rejected by the government) sent Hungarian yields surging on December 29, things have gone from bad to worse culminating with today's 1 Year Bill auction which sold just HUF 35 billion ($140 million) in 1 year bills at a staggering 9.96%, a surge of over 2% compared to the yield for the same maturity debt sold just on December 22. To say that this is unsustainable is an understatement. Alas, with the IMF and EU out of the bailout picture following Hungary's refusal to yield to demands to make its central bank a puppet of the state, ironically categorized by Europe as concerns of central bank "independence" it is likely that Hungary will see far more pain in the coming days as the ECB is certainly not going to be buying Hungarian debt - after all it has its hands full already with those other collapsing Eurozone countries. And punctuating the new year comfort are Hungarian CDS levels which just soared to new records over 750 bps. It is only a matter of time before ISDA decrees that any and every Hungarian default event will be fully voluntary thereby collapsing this latest default protection house of cards.
More from Bloomberg:
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 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.
And some trading desk color:
HUNGARY HAS DOMINATED THE ATTENTION HERE THIS MORNING IN LONDON. THE MARKET OPENED EXTREMELY WEAK (CDS OPENED AT 720/750). THE FIRST TRADE WAS UP AT 755, PAYING ON, WHICH WAS +40BPS. THERE WAS THEN A PRESS CONFERENCE WHERE MINISTER FINEGELLI DECLARED HUNGARY WANTS AN IMF DEAL ASAP FOR THE MARKET AND THAT THE SOVEREIGN WOULD MAKE A "HUGE EFFORT" TO CUT DEBT. BONDS RALLIED A BIT AS THE CURRENCY CAME BACK FROM 323.67 TO 321.82. AFTER, HOWEVER, BBG REPORTED THAT HUNGARY FAILED TO RAISE PLANNED AMOUNT OF DEBT IN A LOCAL T-BILL ACUTION. THE AVERAGE YIELD ON THIS AUCTION WENT TO 9.96% FROM 7.91% AT THE LAST SALE OF THE SAME MATURITY ON DEC 22.