Hungary finally joins the negative yield club

By bne IntelliNews March 21, 2017

Hungary finally joined the negative yield club on March 21 as Government Debt Management Agency AKK  accepted a bid of -0.01% at an auction of 3-month T-bills.

Hungarian yields have been on the cusp of moving into negative territory for months, as the central bank continues to use unconventional tools to ease monetary conditions. Enjoying a much better rating, peers Slovakia and the Czech Republic have been enjoying negative yields for over a year. Hungary has crossed the line as global appetite for emerging market debt pulls back slightly due to ongoing hikes by the US Fed and indications from the European Central Bank that its dovish stance is set to pull back.

Although the average yield at the March 21 auction remained at 0.01%, the minimum accepted yield was -0.01%, AKK noted. The push on yield saw just HUF12bn (€38.89mn) worth of 3-month T-bills sold. Bids totalled no more than HUF14.2mn on an offer of HUF20bn.

AKK was keen to point out that this was the first time primary dealers had bid at a negative rate. Supported by the Magyar Nemzeti Bank’s (MNB) policies to raise forint liquidity at local banks, the yields on Hungarian T-bills have been tightening consistently over recent months. 

As part of that push by the central bank, the MNB authorised HUF150bn of 1-month forint swaps against euros at a tender on March 21. The six participating banks made bids of €796mn.

The tender was the latest of a regime aimed at fine-tuning forint-liquidity in the banking system after the MNB put a cap on placements in its three-month deposit instrument in the autumn. The strategy is to motivate lenders to buy local state debt or raise lending to the real economy.

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