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AKK cuts offer at T-bill auction because of scattered yields, not demand

Hungary's Government Debt Management Center (AKK) cut its offer at an auction of twelve-month T-bills on Thursday not because of demand, but because of scattered yields in bids, AKK deputy-director László András Borbély told Econews.

AKK sold HUF 35 billion of bills at the auction, cutting its original offer by HUF 15 billion. Primary dealers bid to buy HUF 63.4 billion of the bills. Average yield at the auction was 5.82%, 19bp over the secondary market benchmark set on Wednesday and 38bp higher than the yield at the previous auction of the bills two weeks earlier, suggesting that yields in submitted yields were high.

We could have accepted bids for the original HUF 50 billion on offer, considering the bills were oversubscribed by a factor of 1.3, but the offer was cut because of the wide range of yields, Borbély said. This reflects uncertainty around yield expectations for the short term: demand falls and the difference between yields grows, he explained. Even after the cut of the sale the gap between the average yield and the highest accepted yield at the auction was 10bp, he added.

One cannot and must not draw broad conclusions from a single auction, Borbély warned.

Twelve-month T-bill auctions have been 1.9 times oversubscribed on average this year, and the oversubscription rate for other terms has been bigger, Borbély said. “We've become spoilt,” he added.

Hungary's auction system, in which sales take place frequently, twice a week, protects financing from short-term fluctuations on the market, he said.

AKK has offered HUF 830 billion of twelve-month T-bills so far this year. Combined bids for the bills have come to HUF 1,580 billion and AKK has sold HUF 785 billion, cutting original offers at four sales by a combined HUF 45 billion.

Weekly auctions of three-month T-bills have been almost three times oversubscribed this year. AKK cut its offer for the bills at two auctions but raised its offer at nine.

AKK has offered HUF 1,395 billion of the three-month bills this year, but has sold HUF 1,440 billion, HUF 45 billion more, after receiving combined bids for HUF 4,135 billion.

Average coverage at bond auctions this year, not counting exchange auctions, has been about 2.5. AKK has sold about HUF 175 billion more bonds than offered originally, including the sales at the non-competitive tenders that follow the auctions, Borbély said.

AKK has so far this year offered HUF 900 billion of bonds, but it has sold HUF 931.5 billion at auctions and an additional HUF 143.5 billion at the non-competitive tenders, after drawing combined bids of HUF 2,226 billion from primary dealers. (MTI-Econews)