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Demand high, but yields rise further at three-month T-bill auction

Demand exceeded the offer by two-and-half times but the Government Debt Management Agency (AKK) sold only the announced HUF 40bn of three-month discount T-bills at an auction on Tuesday.

Auction yields jumped from a week earlier after Moody’s downgraded Hungary last Thursday and the average yield was also over the secondary market.

AKK sold the announced HUF 40bn of the bills expiring on March 7, 2012 as primary dealers bid for HUF 103.2bn, only moderately less than the HUF 116.1bn bids submitted for the same offer at the previous auction.

Average yield was 7.32%, up 69bp from the previous auction held one week earlier and 7bp over the secondary market benchmark, calculated on the same bill series, on Monday.

Yields ranged still in a wide band between 6.78% and 7.41% as against a band of 6.25% and 6.74% one week earlier.

Secondary market benchmark yields jumped 52bp-82bp on the Moody’s downgrade on Friday but retreated 10bp-53bp on the terms of one-year and over on Monday. The three-month benchmark rose the least, by 52bp on Friday but rose another 10bp to 7.25% on Monday.

High demand at the auction held just before the central bank’s rate-setting meeting suggests that investors think that the rate decision could bring to a halt a rise in yields that started early in September and accelerated late in October.

The Monetary Council of the National Bank of Hungary (NBH) is expected to raise the central bank base rate, which is also the yield of the NBH’s two-week zero coupon bonds. Most analysts expect the council to raise the base rate by 50bp from the current 6.00%.