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Poor auction demand for twelve-month T-bills reflects uncertainties over short-term yields

Continued weak demand for twelve-month discount T-bills reflects uncertainties in expectations over the development of short-term yields, Laszlo András Borbély, deputy-CEO of Hungary's state debt manager ÁKK told Econews.

Demand for other papers has been strong, he noted. AKK does not plan any steps at present but could respond if the problem with the twelve-month bill proves lasting, he said.

Econews asked Borbély to comment after bids for Thursday's 12-month T-bill auction exceeded the HUF 50 billion offer only by about HUF 7 billion, similar to the previous twelve-month T-bill auction two weeks earlier. AKK reduced sales compared to the original offer by HUF 10 billion on Thursday after a HUF 15 billion reduction at the previous auction on June 10.

There were few offers and yields in bids varied significantly, Borbély said adding that the problem is a structural one, limited to the twelve-month discount T-bills. Tuesday's three-month auction was more than three times oversubscribed, and there was strong demand for the three-, five- and ten-year bonds at last Thursday's auction.

ÁKK does not react to developments at one or two auctions, but they closely follow the market, Borbély said, not excluding an eventual response in the future.

The shortfall of twelve-month T-bill sales to primary dealers does not make necessary any increase in the amount of other government securities issued, he said.

Borbély noted that the Hungarian yield curve has developed strangely lately with practically flat yields up to one-year term, and sharply higher yields above that, showing the market is divided over the future development of short-term yields.

Weak auction demand for the twelve-month bills suggests that investors have decided to wait and see how the Hungarian base rate will develop. The National Bank of Hungary kept its base rate unchanged at 5.525% for the second month in a row at a meeting on Monday after cutting the rate at each of its monthly meetings between July 2009 and April 2010. (MTI – Econews)