Hungary rides Russian relief rally to sell $3bn in bonds

By bne IntelliNews March 19, 2014

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Hungary launched a dual-tranche US dollar bond offer on March 18, as the markets in the region rallied on the back of Russian promises that it is not planning to extend its military adventure in Ukraine.

Debt Management Agency AKK sold $3bn in total. The sovereign, rated Ba1/BB/BB+, had set initial price thoughts of 287.5bp over US Treasuries on a five-year paper, and 312.5bp for a 10-year tenor, reports IFR. However, those spreads pulled in to 260 basis points and 287.5bp respectively as it sold $1bn of the 5-year paper, with the ten year accounting for the remainder. The sale was reportedly oversubscribed by five times.

"Thus, the final yields were 4.17% and 5.57%, respectively," point out analysts at Erste. The 10-year issue compares favorably with the current benchmark that was issued in November 2013, and was trading at a yield of 5.37% at the time of the placement, they add. "Including the latest auction, Hungary's €5.4bn forex redemption for this year is nearly covered. The remaining part is likely be refinanced by HUF conversion."

At Commerzbank, analysts note that the issue came as the market rallied on the back of a speech by Russian President Putin. The issue shows that "the spillover effect into [Central and Eastern Europe] has been contained up to now," they write. "We remain [overweight] on bonds in CEE, while holding on to our [underweight] recommendations in Russia and Ukraine on the wait for the west's reaction (the economic hit could be large)."

"Following Hungary's Eurobond issue, the total year-to-date Emerging Market sovereign issuance stands at around $34bn," they add, "which leaves very little issuance of around $4bn in the EM space (excluding Czech Republic, which is in a universe of its own), and puts EM in general in a very comfortable position ahead of the Fed's further tapering activities."

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