More FX-denominated bonds and reverse FX swaps

HUNGARY - In Brief 14 Sep 2021 by Istvan Racz

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The market saw a Monday unusually rich with government and central bank measures, to which some extra explanation might be useful.First, the ÁKK revised its annual financing plan, raising its FX-denominated bond issuance target by a large amount, to EUR4.5bn from EUR1.8bn. At the same time, they also raised their issuance target for HUF-denominated bonds by a smaller, but still significant, amount - by HUF230bn. Second, the MNB cancelled its regular FX swap tender set for the day, and announced a reverse FX swap tender for September 15, on top of the four other reverse swap tenders, which had been set previously, in line with the Bank's habit to temporarily provide domestic banks with large sums of euro liquidity to help them meet their end-quarter clean-up obligations vis-a-vis foreign creditors, mainly parent banks.In line with their decision on the FX-denominated bond issuance target, the ÁKK has reportedly mandated BNP Paribas, Citigroup, Goldman Sachs and JP Morgan to prepare the issuance of a 10-year and a 30-year benchmark dollar bond and a 7 and/or 20-year maturity benchmark euro bond.As for the official explanation, ÁKK referred to possible delays in the transfer of the HUF326bn advance payment by the EU under the RRF facility, the cash needs of certain government spending items under the 2021 government budget and the objective to partially pre-finance the 2022 government budget. The MNB only said, using their generalistic formula, that their intention was to secure the orderly working of the FX swap market around the usually difficult upcoming quarter end.Well, all this is largely fine, of course, although the RRF advance payment has never been part of this ...