Hungary Is Seeking Buyers for the Longest Sovereign Green Bond

(Bloomberg) -- Hungary is making its debut domestic green bond the longest maturing by any government, a bold bet combining two of the hot trends in debt markets this year.

The debt agency in Budapest plans Thursday to auction 20 billion forint ($70 million) of notes that won’t be due until April 2051. That will be beyond any sovereign green bond available to investors, according to data compiled by Bloomberg. Its 30-year maturity will put it on a par with green dollar debt sold by Hong Kong earlier this year and a euro-denominated offering from Poland in 2019.

The move is part of efforts by Zoltan Kurali, a former Deutsche Bank AG investment banker turned debt chief, to extend the lifespan of Hungary’s borrowing. It follows other countries selling ultra-long bonds this year and comes as investors are paying a premium to grab green bonds.

Hungary lacks a strong pension or insurance fund industry that would be a natural buyer for ultra-long bonds, prompting uneven demand for some of the agency’s more recent auctions. Tying the funds to spending on environmental projects is likely aimed at expanding the investor base.

“The debt agency should start small while trying to develop a yield curve, and investors will ultimately come,” said Andreas Rein, a money manager at Uniqa Capital Markets GmbH in Vienna. “But demand will be capped due to exchange-rate risk, the lack of liquidity and ESG funds’ preference for shorter maturities in more exotic currencies.”

The auction results will be published at 11:30 a.m. in Budapest, with the government planning to sell more of the notes this year, targeting 90 billion forint of issuance in total.

The central bank has pledged to help, offering to buy the debt as part of its quantitative-easing program. Despite the equivalent of $6.3 billion in purchases by the authority, Hungary’s forint yield curve remains the steepest among eastern European peers.

The debt agency has already scrapped the sale of three-year bonds, lifted offerings of 15- and 20-year notes, and turned to switch auctions to cut back on short-term debt. That’s helped Hungary increase the average duration of its forint debt, but the ambitions have limits.

Volatility in the long end of the curve means domestic investors may not want to run the risk of buying the notes before off-loading holdings to the central bank, according to a Budapest-based bond trader, who asked not to be named as they are not authorized to speak publicly.

There are also very few ESG-dedicated funds in Hungary who can afford to hold on to this kind of paper, so domestic buyers hoping to gain a few basis points may face an anxious couple of days before the central bank steps into the market.

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