Hungary’s bond yields rose the most in more than a week before an auction today as the European Commission threatened to withhold subsidies and a dispute held up talks on a bailout.
Hungary is offering 42 billion forint (US$193 million) in debt maturing in 2015, 2017 and 2028 at today’s biweekly sale, according to data from the Debt Management Agency on Bloomberg.
The yield on existing five-year notes climbed 9 basis points, or 0.09 percentage points, to 8.631 percent by 11:28am in Budapest yesterday, from as low as 8.31 percent on Feb. 8.
The commission will propose suspending funds used to finance Hungarian development projects after the country failed to curb its deficit in a sustainable way, a European official said on Tuesday on condition of anonymity because the discussions were private.
The move increased the pressure on Hungarian Prime Minister Viktor Orban, who has been trying to revive talks with the EU and the IMF on a bailout since the beginning of the year.
“Bond investors aren’t expecting bailout talks to begin before late March at the earliest,” Zsolt Kondrat, head of research at Bayerische Landesbank’s MKB Bank unit in Budapest, said in a telephone interview on Tuesday.
“There is only a finite amount of time before the government must show something, at least that talks can start,” Kondrat said.
The potential loss of EU subsidies is “an additional threat,” Kondrat said.
Hungary has responded to all of the EU’s concerns about disputed legislation, including monetary-policy independence, that has delayed international aid, Hungarian Foreign Minister Janos Martonyi told reporters in Prague on Tuesday. He “hopes” talks can begin by the end of next month.
The European Commission has no timeline or deadline to assess Hungary’s response to the so-called infringement procedures on the disputed legislation, commission spokesman Olivier Bailly told reporters in Brussels.