Economy 24 June 2025, 9:06am

Hungary issues USD 4 billion in bonds across three maturities

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Hungary issued USD 4 billion in foreign currency bonds at three times oversubscription, mainly for 5-year maturities. The move provides a stable source of funding for the budget while improving the structure of public debt and increasing fiscal space.

Úgy reccsent meg a forint, hogy igazán még csak nem is támadták

Hungary issued USD bonds with maturities of 5, 10 and 30 years for a total amount of USD 4 billion, under the management of the Government Debt Management Agency (ÁKK).

As indicated in the Ministry of National Economy's (NGM) statement, the issue attracted more than USD 14 billion of investor interest, resulting in an oversubscription of more than three times the amount.

Interest rates were

5.375% - 5 years,
6.0% - 10 years, and
6.75% - 30 years

during the bookbuilding process.

The release highlights that compared to US government bonds, the ÁKK was priced 30-40 basis points more favourably, with yields remaining close to secondary market levels.

The resources raised will be swapped into euro by the ÁKK, with a lower cost of funds after hedging than the January euro bond issue. According to the NGM, the long maturities improve the maturity structure of public debt, while the issuance increases the flexibility of debt management and the level of reserves.

The issuance is intended to finance the 2025 budget and to allow for possible debt buy-backs in the course of the year. The announcement said that the move was justified in the context of international financial market uncertainties for the safe management of public debt.

Did the Hungarian state get a good deal?

Although at first glance the dollar bond does not seem particularly cheap, as the ten-year yield is currently 7.1% in forint terms, meaning that the ÁKK would take on the currency risk for a difference of 170 basis points at most, the aforementioned fact that the debt manager swaps all the funds involved into euro, and this is how the final yield is calculated, already nuances the overall picture.

This euro-dollar swap is particularly favourable now, as the US interest rate of 4.25-4.5% is significantly higher than the euro area's benchmark rate of 2.4%, and the dollar has weakened a lot recently.

It is legitimate to ask why the ÁKK did not enter the market in euros straight away, as it may be worth maintaining a presence in the dollar market, where it can reach other types of investors, especially US institutional players. The last dollar bond issue before this one was in January 2024, almost a year and a half ago, so a fresh series was timely.

Was the resource raising cheap or expensive?

One more way to look at the cost of the current dollar bond is to compare it with similar domestic and international issues in recent months. As mentioned, the last time Hungary entered the market in dollars was almost a year and a half ago, so it is not relevant. In euro, Hungary last issued 10 and 15-year paper in January this year, when the shorter yield was 4.5%, and after swaps, the final yield level could be at a similar level now.

If we compare it to the regional countries, we should take into account that the Polish CDS spread is significantly lower, while the Romanian one is higher than the Hungarian one. The Czech Republic rarely enters the market with a foreign currency bond and has not had such a transaction so far this year. If we compare the issuance seen since the beginning of the year, both Poland and Romania have issued bonds in dollars.

The Romanians sold 12-year paper at 7.5% in February, which is significantly higher than the Hungarian 10-year yield of 6.2%. It should be added, however, that we were then ahead of the Romanian presidential elections, which increased the risks for our south-eastern neighbour. The Poles, on the other hand, also sold 10-year paper in January at a dollar yield almost 100 basis points lower, which is realistic given the perception of investors in both countries.

Looking at this year's Eurobond issuance, a similar picture emerges, with the Poles raising funds from the market at a slightly lower cost and the Romanians at a much higher cost.

All in all, it seems that Hungary has made a rather advantageous decision with the recent US dollar bond issue, as the interest of investors shows, as the total amount of bids for the USD 4 billion issue was reportedly over USD 14 billion.With a yield spread of 200-300 basis points, it can be said that it is significantly cheaper to go into debt in foreign currency. It should be added, of course, that foreign currency debt has other costs that are difficult to quantify. One of these is that the current dollar bond will raise the share of foreign currency in total debt above the 30% level. The question of how investors and credit rating agencies will assess the crossing of this level is not yet answered.

By the way, if we add to the latest available debt of the central budget at the end of April, the equivalent of about HUF 4 billion, the total debt would exceed HUF 60 thousand billion for the first time, but more importantly, the share of foreign currency would rise to 32.2%. The ÁKK expects this to fall in the second half of the year, with a projected ratio of 30.2% by the end of the year. Such a small crossing would probably not trigger a major market reaction, so there is no need to fear this for the time being.