Credit Suisse asset manager explains poor demand for 10-yr HGB


Uncertainty about the details of Hungary's new Convergence Program caused the poor demand for 10-year bonds at today's auction, Credit Suisse asset manager Attila Rebák told on Thursday. The key question everybody wants answered now is whether there will be a new offical target date for euro adoption and if yes, what this will be. Rebák said it would be vital for the government to set a new target date and also to draw up a credible macroeconomic path leading to it (instead of insisting on the current 2010 date). The Government Debt Management Agency (ÁKK) has today received only Ft 26.3 billion worth of bids on Ft 40 billion 10-year bonds (2016/C), while the Ft 45 billion 5-year bonds attracted Ft 84.25 billion bids. Hungary bumps into surprisingly weak demand for 10-year bonds. The asset manager said the Gyurcsány package failed to cheer up the fixed income market too much because it “does not serve a permanent reduction of the public sector deficit". “Without the reform of the large distribution systems, the deficit will be back in a few years," he added. Hungary is to submit its Convergence Program to the European Commission by 1 September. Until then Rebák expects mixed performance but without major fluctuations on the FI market. He also said the central bank (NBH) would need a 5-8% stronger forint than it is currently if it wants to meet its 2008 inflation target. The demand for a stronger local currency has been stressed in the recent statements of different Monetary Council members, as well. Rising inflation and uncertainties about the Convergence Program should prompt the NBH to continue monetary tightening so as to ensure a suitable premium over European instruments and achieve that foreigners buy heavily in Hungary, Rebák said. According to the asset manager the base rate (currently 6.75%) might be raised as high as 8.00-8.50% by the end of 2006. (Portfolio)


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