Hungary doubles bond sale after deficit pledge-UPDATE 3

Trade the News

Saturday September 11, 2010 12:53:14 AM GMT

* Govt sells HUF 95 bln vs initially planned 50 bln

* Yields fall, but still 5-10 bps above last tender

* Govt pledge for 2011 budget cuts helped lift demand

* Debt agency will not change short-term issuance plans

(Adds topup auction, updates yields)

By Sandor Peto

BUDAPEST, Sept 9 (Reuters) - Hungary sold almost double the amount it had planned to on Thursday as a pledge to cut its budget deficit in 2011 boosted demand, but broad concerns over its finances kept yields much higher than at previous tenders.

The government debt agency AKK sold 70 billion forints ($309.6 million) worth of 3-, 5- and 10-year bonds at auction, a full 20 billion forints more than it had planned. [ID:nLDE6880RT]

It also sold 25 billion forints worth of paper at a top-up auction, bringing the total to more than 95 billion forints. <HUAUCTION03>

The auctions attracted about 220 billion forints in total bids, aided by Economy Minister Gyorgy Matolcsy's pledge to cut the deficit to below 3 percent of gross domestic product next year in line with European Union demands. [ID:nLDE6871V3]

Yields fell about 20 basis points after Matolcsy's comments on Wednesday and they dropped a further 25 basis points on Thursday. They are still 5-10 basis points higher than at auctions two weeks ago <HUAUCTION02> and their elevated levels were a further attraction for investors on Thursday.

The successful auctions also lifted the forint <EURHUF=D2> by about quarter of a percent against the euro.

"The announcement by Matolcsy caused a quite strong turnaround in the market," a fixed income trader said. Successful bond auctions by Portugal and Poland earlier on Thursday also helped sentiment, he said. [ID:nLDE6871V3]

The trader said he had heard that some forint long positions had opened after the auction against the Polish zloty, suggesting Hungary's appeal relative to its central European neighbours may also have improved.

But after months of mixed signals from Budapest, Hungary will also have to demonstrate it was fully behind Matolcsy's comments and how it will reduce the deficit despite still poor economic growth.

"What do we need to see to become convinced? First, hopefully some additional statements, preferably from PM Viktor Orban, that are consistent with the message," Barclays analysts said in a client note.

"Second, some suggestions of concrete measures the government plans to implement to achieve the 2011 target."

AKK Deputy Chief Executive Andras Borbely said demand for Thursday's auction was very strong in global terms but the agency would not change the size of planned debt issues on the results of just one day of auctions.

"We had very good auction results in a relatively negative international environment," he said. "The announcement of the (2011) budget deficit very likely had a positive impact." (Reporting by Budapest bureau; editing by Patrick Graham)

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