Hungary says it might borrow money from global bond markets before it lands a long-awaited aid deal with the International Monetary Fund. That pretty much seems to suggest Budapest has given up hope of getting the IMF cash any time soon. Given the fund has already said it won’t visit Hungary in April, that view would seem correct.
There is some logic to the plan.
Hungary desperately needs the cash — it must find over 4 billion euros just to repay external debt this year.
It is also an attractive time to sell debt. Appetite for emerging market debt remains strong. Emerging bond yield premiums over U.S. Treasuries have contracted sharply this year and stand near seven-month lows. Moreover, U.S. Treasury yields may rise, potentially making debt issuance more costly in coming months.
For Hungary’s government , the idea of a successful bond sale is particularly attractive as this will at a stroke improve its bargaining position with the IMF. That’s bad news, says Tim Ash, RBS head of emerging European research:
The problem is that getting cash in the bank may actually reduce the likelihood of the government actually finally cutting a deal with the IMF, so arguably increases market risk over the slightly longer term.