Hungary cuts back bill auction, markets still wary

The bills were sold at an average yield of 5.35%, compared with a yield of 5.17% two weeks ago, before the market turmoil last week caused by the government's mixed messages about the state of Hungary's public finances.

Some of those comments spooked markets, triggering concerns that Hungary may be close to a Greek-style debt crisis.

Thursday's auction was the first bill auction since Prime Minister Viktor Orban presented an economic plan on Tuesday in a bid to reassure investors that the government aimed to meet this year's deficit target of 3.8% of GDP and keep finances sustainable.

Markets have calmed on the plan but analysts have said there were still risks around the implementation, especially regarding a planned major tax on the financial sector.

The debt agency AKK sold 35 billion Hungarian forints worth of 12-month Treasury bills on Thursday, less than its planned offer of 50 billion forints and the average yield rose 18 basis points from the previous auction two weeks ago.

"The (market) reception of the action plan was positive, but no one dares to take big bets yet as there is uncertainty about the feasibility (of the plan)," one fixed income trader said, adding that the global risk appetite also remained fragile.

The yield on a Czech 52-week T-bill also rose on Thursday to 1.23% from 1.10%.

Some traders said the government may also need to cut bond auctions to be held next Thursday, while others said demand at those auctions would largely hinge on further domestic economic policy news and the sentiment in international markets.