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Auction cover ratios rise, gov’t bond yields on average little changed in Q1

Demand for Hungarian government securities increased in the first quarter of 2011, and the average bid-cover ratios rose significantly, except for the shortest (three-month) and the longest (15-year) terms at auctions held during the period, a primary market summary of the Government Debt Management Agency (ÁKK) shows.

Despite rising demand, auction yields in Q1 were little changed, on average, from Q4 2010, varying between 6.98% and 7.55% for bonds and between 5.89% and 6.00% for discount T-bills. Yields fell 23-109 bp from the one- to ten-year maturities, if the last auctions of the two quarters are compared.

T-bill auction yields were stable during the quarter after a rise of three-month T-bill yields early in January. Bond yields were more volatile, falling until late January, rising for most of February, then dropping in March.

Demand rose the most for five-year bonds, on which the bid-to-cover ratio climbed from a 3.22 average in Q4 to 4.41 in Q1. The average auction yield for the quarter still increased slightly to 7.27% from Q4, but the average yield for the term at the last auction in Q1 fell 88 bp to 7.03% from the last auction in Q4.

The three-year bond auction average coverage ratio remained the second-highest, at 3.92, in Q1, rising from 3.11 in Q4. The average auction yield for the term for the quarter fell by 12 bp to 6.98%. The average yield at the last auction of the bonds in March was down a steep 109 bp at 6.68% compared to the last auction in December.

Demand at the ten-year auctions in Q1 was 2.65 times offers, up from 2.26 in Q4. The average yield for the term for the quarter fell 4 bp to 7.44%. The average yield at the last auction in March was down 82 bp from the one at the end of December.

Bids for twelve-month discount T-bills were on average 2.61 times the offers, up from 1.97 in Q4. The average yield for the term for the quarter rose 6 bp from Q4 to 6.00%. The average yield at the last auction of the bills in Q1 was down 23 bp at 5.97% from the last auction in Q4.

The two maturities for which demand fell during the period were the three-month term, with a bid-to-cover of 2.52, down from 2.65, and the 15-year bond, with a bid-to-cover ratio of 1.80, down from 1.94.

The average auction yield of the three-month discount T-bills was 5.89% in Q1, up 44 bp from the Q4 average. The 5.95% average at the last auction in Q1 was 21bp over the yield at the last auction in Q4.

The average yield for the quarter of the 15-year term rose 52 bp to 7.55%.

Including the sales at the non-competitive tenders held after the bond auctions, ÁKK sold a combined HUF 409 billion bonds at the Q1 auctions as against the originally offered HUF 335 billion. The biggest excess sales were from three-year bonds, sold to a volume of HUF 223 billion instead of the announced HUF 140 billion, but the HUF 178 billion of five-year bonds sold was also almost 50% over the original offer. The HUF 94 billion of ten-year bond sales in Q1 exceeded the announced amount by almost 45%.

ÁKK sold HUF 630 billion three-month T-bills and HUF 320 billion of twelve-month T-bills in Q1, 6-7% over the announced offers.