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On Last Week's Underreported Failed Hungarian Auction

Courtesy of Tyler Durden

Another important piece of news that was lost in last week’s “oilflow” in addition to the failed Chinese bill auction previously discussed on Zero Hedge, was the Hungarian 12-month bill auction on June 10th, which aimed to raise 50 billion Hungarian Forints ($214 million), of which the government only accepted HUF35 billion in offers. It is unclear if submitted bids actually topped 50 billion, yet the inability to find a mere $64 million at acceptable terms is very troubling. Fitch immediately stepped in to diffuse the situation, which is still very tense courtesy of the prior week’s commentary out of Hungarian politicians that the country is in dire a situation as Greece: “Fitch Ratings has said on Friday that while Hungary’s Government Debt Management Agency (ÁKK) was able to sell less 12-month discount Treasury bills than it originally planned yesterday, the undersold debt auction means no threat to the country’s financing ability, but it does highlight its vulnerability that was exacerbated by “misjudged comments” by members of the new government” as portfolio.hu reports. The failed auction, does “highlight Hungary’s ongoing vulnerability to global investor risk aversion, sharpened recently by misjudged comments by the new Hungarian government, and post-election uncertainty over the outlook for public finances in the context of an already high gross government debt burden.”

The full Fitch statement is as follows:

“Fitch says yesterday’s undersold HUF50bn (about EUR180m) government debt auction – the first since the auctions restarted following the signing of the EUR20bn IMF-led support package – does not threaten Hungary’s immediate financing ability, which is supported by access to substantial official external funds and large domestic deposits.”

“It does however, as previously stated by Fitch, highlight Hungary’s ongoing vulnerability to global investor risk aversion, sharpened recently by misjudged comments by the new Hungarian government, and post-election uncertainty over the outlook for public finances in the context of an already high gross government debt burden (for further details see, ‘Fitch: Tight Fiscal Policy Needed to Stabilise Hungary’s Ratings,” published on 9 June).”

What is surprising is that even with the ECB now openly monetizing any European government debt (and in the process debasing the Euro further), including primary auctions that are on the verge of failure, that some country could not find enough submitted bids to accept 100% of them as attractive. The last thing the ECB needs is to be focusing on preventing another debt blowout in Spain, Portugal and Italy, and to lose sight of Hungary, Eastern Europe, and the Baltic states. On the other hand, when dealing with a continent in which traditional monetary policy is impossible, all other solvency metrics flow together like connected vessels. We expect no moderation for Europe’s liquidity crisis, especially following recent disclosures that Europe proper is increasingly considering retrenching, and focusing on deficit reduction instead of wanton money printing.


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