A bond trader in London is still marvelling at the market’s willingness to snap up a\u00a0Eurobond from Hungary,\u00a0calling it a\u00a0country\u00a0with “a policy mix so unorthodox even Aunty Christine won’t lend to them”.\u00a0 But Hungary’s probable glee at bypassing the IMF and “Aunty Christine”\u00a0 with $3.25 billion in two bonds that were almost four times oversubscribed, is probably short-sighted.<\/p>\n
Hungary needs to raise\u00a0the equivalent of $23.4\u00a0billion this year\u00a0to repay\u00a0maturing debt. The bond placement will enable Hungary to\u00a0easily meet the hard currency component\u00a0of\u00a0this, and it has been enormously successful in\u00a0luring buyers to domestic debt markets.\u00a0 Such has been the demand for Hungarian bonds in recent months that foreigners’ holdings of forint-denominated government debt are at a record high of over 45 percent.<\/p>\n
The\u00a0success does not necessarily represent a thumbs-up for Prime Minister Viktor Orban’s policies but\u00a0is more likely due to the yield Hungary paid — well over 5 percent for five and 10-year cash. In dollar terms that is not to be sneezed at, especially at a time when liquidity is abundant and the yield on mainstream dollar assets is low. The same reason is behind the demand for forint bonds, where Hungary pays\u00a0over 5\u00a0percent on one-year paper. An IMF loan would have been far cheaper. (The\u00a0rate for a standby loan of the kind Hungary had\u00a0is\u00a0tied to the IMF\u2019s Special Drawing Rights<\/a> (SDR) interest rate. Very large loans carry a surcharge of 200 basis points)<\/p>\n The dollar bond sale is forcing\u00a0Budapest to pay lenders roughly double what it would have paid for an IMF standby loan, says William Jackson at Capital Economics:<\/p>\n Of the Hungarian government\u2019s 5.1 billion euro of maturing hard currency debt this year, 3.6 billion euro\u00a0consists of IMF loan repayments, which carry a much lower interest rate than the Eurobonds. By rolling over these repayments with Eurobonds, debt servicing costs will rise. Note too that the new dollar bonds add to Hungary\u2019s underlying FX debt problem.\u00a0 Around half of government debt is hard currency-denominated (c. 36% of GDP). And Hungary\u2019s economy has contracted in\u00a0 dollar (and euro) terms over the past five years \u2013 increasing the burden of dollar (and euro) debt in local currency terms<\/em>.<\/p>\n<\/blockquote>\n According to Benoit Anne, chief EM strategist\u00a0at Societe Generale:<\/p>\n The absence of\u00a0(an IMF) safety net may\u00a0haunt them in future…The IMF was a cheap\u00a0insurance\u00a0policy but the government has decided to ride the global liquidity-fuelled emerging markets appetite wave.<\/em><\/p>\n<\/blockquote>\n Cost was never likely an issue for Orban, who might view an IMF deal (entailing toeing stringent IMF terms)\u00a0far costlier in political terms ahead\u00a0of a 2014 election. The\u00a0other, more widely voiced, concern is that\u00a0with a successful Eurobond sale under its belt and an election looming, the government may feel more confident in pursuing its unorthodox growth agenda, Jackson says.<\/p>\n Meanwhile,\u00a0the IMF’s\u00a0representative in Hungary Iryna Ivaschenko warned the golden days may not last for Budapest:<\/p>\n Countries like Hungary which.. still have sizeable financing needs year after year are susceptible to sudden changes in investor sentiment which is inevitable.<\/em><\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":" A bond trader in London is still marvelling at the market’s willingness to snap up a\u00a0Eurobond from Hungary,\u00a0calling it a\u00a0country\u00a0with “a policy mix so unorthodox even Aunty Christine won’t lend to them”.\u00a0 But Hungary’s probable glee at bypassing the IMF and “Aunty Christine”\u00a0 with $3.25 billion in two bonds that were almost four times oversubscribed, […]<\/p>\n","protected":false},"author":7384,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-642338","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/642338","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/7384"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=642338"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/642338\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=642338"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=642338"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=642338"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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