Huge jump in Hungarian short yields

The issuer received HUF 101.5 billion in bids for the HUF 40 billion tranche of 3-month treasury billy on offer on Tuesday, of which the ÁKK accepted HUF 44 billion. Yields averaged 1.13%, a noticeable 31-bp increase since last Tuesday's auction, and also 19 bp higher than Monday's secondary market yield. Yields on 3-month treasury bills issued by Hungary have not been so high since June 2015.

A conspicuous jump in yields was already apparent in yesterday's 6-week liquidity auction, indicating similarly high yields in Tuesday's 3-month auction as well. The phenomenon is explained by the fact that the agency slammed the brakes on issuance in late 2015, so much so that banks had nowhere to put their money, which was obvious from the increase in the stock of the 3-month key policy instrument of the National Bank of Hungary at the end of November. This time around, however, banks are presumably aware that the state needs cash and are encouraged to submit bids that would not have had a chance with issuer in the past.