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Bond exchange auction successful, yields above secondary market

Demand was almost double the offer and Hungary’s Government Debt Management Agency (AKK) sold the announced HUF 10bn of a bond maturing in 2019 in exchange of bonds maturing in 2013 at a switch auction on Wednesday. Yields were above the closest secondary market benchmarks.

The auction followed two unsuccessful bond exchange auctions on September 14 and on November 9.

AKK offered HUF 5bn of 2019/A bonds in exchange for 2013/D bonds and another HUF 5bn in exchange of 2013/E bonds, the same volumes as on November 9 and half of the September 14 undersubscribed auction.

Demand for 2019/A bonds in exchange of 2013/D bonds totalled HUF 9.40bn and bids for exchanging 2013/E bonds for 2019/A bonds totalled HUF 9.95bn.

The 2019/A bonds sold at an average yield of 8.43%, and accepted yields varied between 8.42% and 8.44%.

The auction yields were over the closest secondary market benchmarks - the five-year yield, calculated on the 2017/A series, stood at 8.22% and the ten-year yield, set on 2022/A bonds, was 8,32% on Tuesday.

The debt manager calculated the 2013/D bond at a yield of 7.40% when used in payment, and calculated 2013/E bonds as payment at a 7.54% yield, both well under the closest, 3-year secondary market benchmark, calculated for 2014/D bonds, which was 7.90% on Tuesday.

The September 14 auction was undersubscribed and subscription only slightly exceeded the offer on November 9. On both occasions AKK refused all the bids received.

At the last successful exchange auction on August 17, AKK sold the announced combined HUF 16bn of 2019/A bonds in exchange of the same two bonds at an average yield of 7.23%. Combined demand at the August 17 auction totalled HUF 39.3bn.