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Jan 30, 2020

Hungary buys back USD 1 billion of high-yield FX bonds

Hungary has bought back USD 1 billion of high-yield FX bonds, saving the state HUF 42.7 billion (EUR 26.4m) in debt servicing expenditures.

The finance minister has announced that Hungary has bought back USD 1 billion of high-yield FX bonds, saving the state HUF 42.7 billion (EUR 26.4m) in debt servicing expenditures.

Mihály Varga told MTI that those savings will be booked until 2024 and include HUF 16.5 billion in 2020. He added that another FX bond issue was not necessary to refinance the debt as the bonds had been repurchased with existing forint and FX liquidity.

Hungary’s Government Debt Management Agency (ÁKK) earlier announced it would repurchase the USD 1 billion of bonds between January 21 and 27.

Minister Varga noted that the credit default swap (CDS) spread on Hungary’s sovereign debt is now under 50bp, close to the CDS spread for Polish bonds. In 2010, the CDS spread on Hungarian government securities stood around 400bp.

A CDS contract valued at 50bp means that the cost to insure every EUR 10 million worth of sovereign FX bond exposure against default is around EUR 50,000 a year for the benchmark five-year maturity.

Photo credit: kormany.hu