Hungary sold EUR 2bn of 6 and 12-year bonds yesterday

HUNGARY - In Brief 24 Apr 2020 by Istvan Racz

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Well, it did not take too much time for the government to adjust its 2020 financing plan to the new situation and to start the implementation of the amended financing plan right away.The amended government budget, which raised the deficit target for this year from 1% to 2.7% of GDP, has identified HUF 1601bn of net financing need for the central government, up by HUF 1234bn from the original plan. The Treasury decided to fill up the gap mainly by raising its sales target for FX-denominated bonds from EUR 1bn to EUR 4bn, but it has also raised the target for selling HUF-denominated bond to institutional investors by HUF 1652bn, because it expects increased repurchases and lower sales of retail bonds, as the financial situation is set to deteriorate in the household sector. To meet the latter target, the Treasury is planning to auction 3 and 5-year bonds weekly and to raise the supply of 10, 15 and 20-year papers in the rest of this year. To achieve the former target, they have rushed to grab investor demand as quickly as possible, before the European bond market could be hit by a more serious aggravation of government financials all around the continent. So they went out to the market quickly, and sold two EUR 1bn tranches of long-term bonds yesterday, the 6-year series at Bund +188 bps and the 12-year series at Bund + 226 bps. Given significant excess demand, the actual pricing came out at 15 bps below the original indication.From the economist's point of view, this early financing action explained a lot about why the amended fiscal deficit target has been set at 2.7%of GDP, which we characterised as inadequately tight in our latest monthly piece just three days ago. O...