An interesting anomaly is popping up in the world of Eastern Europe, Middle East, and Africa (EEMEA) flows, note Bank of America Merrill Lynch on Friday:
Investors are puzzled by the lack of EEMEA FX appreciation in spite of G-10 central bank printing. Waiting for the flow may be like Waiting for Godot: you wait and wait, but he never comes. Global rebalancing, deleveraging and higher US rates are responsible for this, in our view. In sum, the flow trends are consistent with the poor performance of EEMEA FX—and insofar as they are unlikely to change, currencies are likely to remain weak. Read more
It’s understandable why the introduction of a two-year collateralised credit facility as well as the expansion of the range of eligible collateral accepted by Hungary’s central bank, the Magyar Nemzeti Bank (MNB), might have been confused for the Hungarian version of the ECB’s LTRO.
But, says Nomura’s Peter Attard Montalto, this would be a misnomer. Read more
Making an extraordinary story of bailout conditionality even more extraordinary…
The European Commission warned the Hungarian government on Wednesday that it’s ready to go to the European Court of Justice to argue that a new constitution violates EU law. Read more
Gosh, Hungary divides sentiment. (It has also, just as we went to pixels, been stripped of its last investment-grade rating by Fitch.)
Despite our saying not once but twice that Hungary isn’t running out of money in its current crisis, people seem to think that we think they are running out of cash to pay off their debt. Read more
Hungary’s currency plunged to fresh lows against the euro on Thursday after the country failed to attract enough investors at a government bond auction to reach its target, the FT reports. Analysts warned that the central bank might have to take drastic action to raise interest rates in an effort to prevent investors from selling assets after the sale of just Ft35bn in government debt, down from a targeted Ft45bn. Investors have become increasingly concerned about the country’s ability to pay its debt as bond yields have risen, with credit default swaps hitting a record high this week. A new law that curbs the central bank’s independence as well as a lack of a clear timetable for negotiations with the IMF and the EU are also unnerving investors — although, FT Alphaville says, they are not quite as unnerved as might be expected. Read more
Hungary — still in basket-case mode earlier on Thursday… (a snapshot courtesy of Bloomberg):
The government sold 35 billion forint ($140 million) of one-year bills, 10 billion forint less than targeted, data from the Debt Management Agency on Bloomberg show. The average yield rose to 9.96 percent, the highest since April 2009, from 7.91 percent at the last sale of the same-maturity debt on Dec. 22… Read more
Investors pushed Hungary’s currency to new lows and drove up yields on government bonds Wednesday, says the WSJ, triggered by turmoil around Hungary’s standoff with the EU and the IMF over a law that the Hungarian Parliament enacted last week. Hungary’s forint reached its lowest levels against the euro, at one point hitting 321.67, and yields on Hungarian bonds exceeded 10 per cent, levels not seen since just before country’s the 2008 international bailout. The IMF and EU say the law threatens the independence of the country’s central bank. Unless the conflict is resolved, indebted Hungary is unlikely to get a precautionary credit line it is seeking from the EU and IMF. Budapest says it doesn’t intend to draw on the money, but it says it wants it as a safety net to reassure investors as its domestic economy slows.
(We mean martingale, the betting strategy, not the quant model!)
Here’s the thing about Hungary, as we see it anyway. If you look at things like the current account, for example, it says “fixable by the IMF”. It’s in surplus, if deteriorating. Read more
Austria’s Erste Group Bank warned on Monday it would make a net loss this year of up to 800m euros ($1 billion) and not pay a dividend after taking hits on its foreign currency loans in Hungary and euro zone sovereign debt, Reuters reported. The bank’s shares were down more than 14 per cent at 17.75 euros. The losses at the Eastern European-focused lender resulted from the marking down of exposure to the sovereign debt of struggling euro zone countries and big writedowns in Hungary and Romania on foreign exchange-related loans. The bank also changed the way it handles credite default swaps. Erste Bank said the volatility in financial markets would see it delay the repaying of 1.2bn euros in non-voting capital which it got from Austria during the global banking crisis for at least a year and skip a 2011 dividend. The steps should not trigger demand for more capital at group level. Due to a “continued strong underlying operating profitability” its core tier 1 capital solvency ratio was set to end 2011 at 9.2 percent of assets, the same level as a year before. Read more
In the aftermath of Wednesday’s unexpected rate cut and liquidity measures from the SNB — all designed to weaken the Swiss franc – there was only one thought on many people’s minds.
Was this indeed the top for the Swiss franc? And if so, did that mean it was time to double up on perhaps the most controversial retail trade of all time in central and Eastern Europe? The Swiss-denominated mortgage or loan. (We need only to direct you to our own reader comments to give you a flavour of the sentiment.) Read more
Greece and other stricken countries will have faster and easier access to tens of billions of euros in European Union funds under a plan to help stimulate their economies, the FT says. The plan, to be unveiled on Monday, would not involve extra assistance but would ease co-financing rules for Greece, Ireland, Portugal, Hungary, Latvia and Romania so that they would not have to put up as much of their own cash in order to collect EU funds. According to internal calculations, the six countries could see their co-financing costs reduced by about €3bn ($4.3bn) over the next two years. But officials hope the plan will have a much bigger impact by unlocking tens of billions of euros in EU funds, which many of those governments are entitled to but have struggled to claim. Read more
The Swiss franc.
It has indeed often been cited as being as good as gold. Read more
Or, the ECB provides another reason to steer clear of Hungary.
This legal opinion on proposed government changes to the Hungarian central bank (the Magyar Nemzeti Bank, or MNB) looks like a pretty big red alert to us: Read more
This is another appeal to readers.
FT Alphaville has looked — and looked hard — for reasons to invest in Hungarian government bonds. We can’t find any. Nor can we quite see why Hungary isn’t among the European sovereigns being mauled by a bond market currently on the prowl. Read more
Marc Ostwald of Monument Securities has a good riff off of the news that Ireland’s national pension fund will indeed be repurposed to buy Irish government bonds:
While many will argue that this is just more ‘unsound finance’, but one should not forget that Japan’s Post Office and other Japanese public sector some 52% of the stock of outstanding JGBs. Unsound finance probably, but if it’s OK for Japan, why should it not be OK for Ireland?? Read more
Here’s an interesting datapoint unearthed up by BNP Paribas’ emerging markets deak on Monday.
The Latvian interbank rate — Rigibor — is trading through Euribor for the first time in four years… Read more
FT Alphaville recently noted the tricky situation Hungary could be getting into vis-à-vis strong demand for emerging market bonds like its own, contrasting with its still-questionable credit fundamentals.
Well, there’s more bad news for Budapest. Read more
Something to bear in mind for all that money flowing into emerging-market bonds lately – there are still some hefty pockets of EM credit risk out there.
Remember Hungary? Read more
Hungary has revealed that it was asked by North Korea to write-off more than 90 per cent of its outstanding debt in the latest indication of the secretive totalitarian regime’s financial distress. Hungary’s economy ministry told the Financial Times that North Korean negotiators had tabled the request in November 2008 during a meeting in Pyongyang. The revelation follows a report in the FT last week that Pyongyang had asked the Czech Republic to write-off 95 per cent of its Kc186m ($10m) debt. The cash-strapped totalitarian state offered to settle 5 per cent of the debt in ginseng, a root that is said to combat lethargy and impotence. Read more
Adventures in debt management, Hungarian change-the-rules edition.
The Hungarian economic ministry made this odd little statement on Tuesday (translated from the Hungarian via Google, so be warned): Read more
Yet more evidence that Hungarian politicians’ careless talk costs, uh, currency — Moody’s placed Hungary’s Baa1-rated government bonds on downgrade review Friday in response to failed IMF talks.
Moody’s reckons a one-notch cut is most likely, in the next four months — but this depends on whether talks resume. S&P slapped a negative outlook on its ratings of Hungary later on Friday, again noting the IMF soap opera. Read more
Are you worried about Hungary? Why not?
According to analysts Peter Attard Montalto and Olgay Buyukkayali at Nomura, policymakers and investors are a tad complacent about the outlook for the troubled European country. Read more
Hungary suffered its second debt auction failure in the space of two months on Tuesday as fears rose over the country’s commitment to economic reforms, the FT says. Hungary — which is in dispute with the International Monetary Fund over its deficit reduction plans, possibly putting a $25bn loan in doubt — cut its treasury bill offering by 10bn forints to 35bn, the Guardian reports. The yield rose by 19 basis points. Spain, Ireland and Greece managed to sell all of their Tuesday bond auctions, Bloomberg says. Read more
The Hungarian forint dropped to a 15-month low against the euro after talks between Hungary and a group of international lenders over the country’s fiscal deficit broke down, the FT reports. Funding talks between Hungary and the International Monetary Fund were suspended without resolution at the weekend after the country’s government refused to consider further austerity measures and instead insisted on a new financial sector tax. Read more
BNP Paribas analysts Vivek Tawadey and Oleksiy Soroka on Monday commented on the standoff between Hungary and the IMF over the small matter of a controversial bank tax, among other things.
As they put it: Read more
Hungarian assets came under heavy selling pressure on Monday after the International Monetary Fund and European Union postponed the conclusion of a budgetary review in Budapest, reports the FT. The international organisations have insisted that the government rethink its proposals, which are hoping to secure greater budgetary leeway in 2011. Although Hungary is not in urgent need of IMF financing, the failure of the negotiations was a blow to investors who remain uneasy about the country’s debt levels and reliance on external financing. Read more
European equity and credit markets are braced for a volatile day of trading after the IMF and EU withdrew a €20bn financing deal for Hungary over the weekend, the Telegraph reports. Separately, the the FT says the IMF is seeking commitments by as early as November to boost its lending resources to $1,000bn from $750bn to build safety nets that could prevent financial crises. Instead of responding solely to crises with conditional loan packages, the IMF wants financing agreed in advance and specially tailored to individual countries, to cool market nerves over any nation facing an imminent liquidity crunch. Read more
An economic action plan including cuts in public sector wages and a temporary bank tax was unveiled by Hungary’s prime minister on Tuesday in an effort to show fiscal restraint and calm financial markets, the FT reports. After much criticism of his Fidesz party’s economic rhetoric, Viktor Orban pledged to overhaul the tax system and ban foreign-currency denominated mortgages. But FT.com’s Beyond Brics emerging markets blog, asks: has Orban done enough? Read more