Hungary ups bond sale, budget plan pushes down yields-UPDATE 1

Trade the News

Friday September 10, 2010 07:47:11 PM GMT

* Govt bond sale lifted to HUF 70 bln vs 50 bln offer

* Yields dip further

* Govt pledge for 2011 budget cuts helped lift demand

* Debt agency will not change short-term issuance plans

(Adds details, comments from debt agency and traders)

By Sandor Peto

BUDAPEST, Sept 9 (Reuters) - Hungary increased a sale of government bonds on Thursday by almost half due to strong demand after Budapest pledged to cut its budget deficit in 2011, while yields dipped slightly.

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

It attracted almost 200 billion forints in total bids.

Demand was boosted after Economy Minister Gyorgy Matolcsy said on Wednesday the government was committed to cutting its budget deficit below the European Union ceiling of 3 percent of gross domestic product next year, indicating it was bowing to EU and market pressure to stick with deficit cuts. [ID:nLDE6871V3]

Hungarian government bond yields fell about 20 basis points on Wednesday after Matolcsy's comments and dipped a further 7 basis points on Thursday. However, they are still 20-30 basis points higher than levels at auctions two weeks ago <HUAUCTION02> and their elevated levels were a further attraction for investors on Thursday, analysts said.

The successful auctions 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 have also improved.

Analysts said Hungary's commitment to cutting its deficit, if backed up by action, could help Hungarian asset markets in coming months, but international market sentiment would remain the decisive factor in the short term.

AKK Deputy Chief Executive Andras Borbely said demand for Thursday's auction, which at 200 billion forints was fourfold the planned issue size, 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 editorial; Editing by Susan Fenton)

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