Secondary market yields of Hungarian government securities dropped significantly in the past six months and they declined on average to pre-crisis levels of autumn 2008 or regarding certain tenors even below that. The yield curve comprised of averages of yields from Q2 2012 has been rising after the pre-crisis declining pattern which may also signal the onset of economic growth recovery. In addition, auction results observed recently similarly indicate that yields on the government securities market have stabilized at a pre-crisis level.
From the beginning of 2008 the Hungarian course of the global economic slump can be divided basically into five periods which spectacularly influenced government securities yields on the secondary market. To the first phase belong the three consecutive quarters prior to the onset of the crisis (from the beginning of 2008), in which period -- except for a level around 7 percent at the start – yields fluctuated between 8-10 percent.
After the bankruptcy of Lehman Brothers, however, due primarily to the consequent confidence crisis on international financial markets, yields increased significantly hitting even 13 percent for bonds of certain maturities. The third phase begins with the third quarter of 2009 when yields fell sharply and yields of short-dated bonds dipped even below the averages prevalent in 2008, prior to the Lehman fiasco. In the fourth quarter of 2011, however, as fiscal issues were gaining attention and international investor confidence declined substantially again, it also resulted in significantly higher yields. In this period quick changes in market expectations regarding the EU/IMF negotiations had a negative impact on benchmark yields as well. At the beginning of 2012, on the other hand, as the Széll Kálmán Plan 2.0 was announced and EU/IMF talks were commenced yields decreased sharply and fell to around 7 percent.
Analyzing the yield curve made up from average yields of certain periods of the crisis it can be concluded that compared to the period right before the global recession short-end yields (for maturities of less than one year) in the latest yield curve period were on average 1.3 percent lower. As far as bonds of longer maturities are concerned, the gap has been narrowing and regarding bonds with maturity of 10 years average secondary market yields are practically identical in both cases.
Regarding the yield curve shape it can be observed that while it was rather downward-sloping (inverted) before the crisis which forecast declining inflation in the medium and long term and as a probable consequence of that an economic slowdown -- which has proven to be right afterwards. From the second quarter 2012 the yield curve of median yields albeit slightly but has been on the rise which may be an indicator of improving growth prospects.
Analyzing auction results it can be concluded that in comparison to the circumstances prevalent during the global economic crisis and periods of poor growth and unfavourable fiscal outlook the situation has stabilized. Comparing average yields at auctions prior to the crisis on the one hand and those after Q2 2012 on the other it is apparent that out of benchmark tenors only the average auction yields of 10-year bonds are marginally higher than pre-crisis figures. However, the largest yield decline has been registered at 12-month treasuries as median auction yields were 1.4 percent lower in the latest observed period than before the crisis. Average auction yields regarding other observed periods were on average 0.9 percent lower compared to the period preceding the global slowdown. As far as bid-to-cover ratios are concerned, demand by primary investors at auctions was lower only for 3-month bills, while it was practically identical for 12-month treasuries and significantly higher for 5- and 10-year bonds compared to the pre-crisis period.
(Ministry for National Economy)
