Residential government securities: it has already been decided whether there will be new products

Good news was announced by the Government Debt Management Center (ÁKK): despite the fact that the Ministry of Finance higher on Monday, about the 2024 cash flow deficit announced an expectation, the ÁKK will nevertheless not need to amend the annual financing plan. There is room for maneuver, which basically has two reasons:

• in the first 9 months, the issuance of institutional forint bonds went according to plan and even exceeded the plan
• and because of this, foreign currency issuance can also be restrained compared to plans, i.e. the ratio of foreign currency debt may be lower than expected by the end of the year

The situation now looks like ÁKK fulfilled 77 percent of the annual fundraising plan by the end of September. Quantified, this means that ÁKK issued debt securities worth HUF 7,643 billion (without exchange auctions: HUF 7,177 billion), which was distributed as follows:

• retail forint government securities: 2,544 billion forints
• HUF bond: HUF 2,852 billion
• HUF loan: HUF 66 billion
• total funds raised in foreign currency: HUF 2,180 billion

The average maturity of all debts is 5.9 years, of which HUF debt is 4.5 years and foreign currency debt is 8.9 years.

Time-wise, the forint institutional market performs the best, here 96 percent of the annual issuance plan has already been fulfilled (the encouragement of the Ministry of National Economy certainly played a role in this, which encouraged Hungarian banks to buy additional government securities in exchange for tax benefits).

Retail investors thought differently than ÁKK expected

Where, however, there is a delay proportional to time, it is a residential government paper segment. Here, by the end of September, only 63 percent of the amount calculated for the whole year was sold. The reason for this is that residential savers rearranged their government bond portfolios differently than the ÁKK expected:

• on the one hand, private investors sold much less of the institutional papers that could also be purchased by the public: the expected net decrease in stocks for the whole year was HUF 300 billion, but the decrease was only HUF 54 billion in 9 months – the decision is understandable, since in a declining yield environment it makes no sense to sell the previously, bought long Hungarian government bonds at an exchange rate that ensured a higher maturity yield
• since the time-proportional part of the HUF 300 billion was not released (only HUF 54 billion instead of HUF 225 billion), consequently less money flowed into the residential bond market, which is why the net stock change there is “only” HUF 1,229 billion in the first 9 months (which is 64 percent of annual plan)

At the same time, only developments in the retail government bond market are not really important, because the ÁKK prefers to look at how savers decide overall (retail government bonds, discount treasury bills, Hungarian government bonds). Here, the plan is for net stock growth in the residential segment to be 2 percent of GDP. This amounts to HUF 1,632 billion, of which 72 percent has been fulfilled so far, so the annual plan can probably be met.

At the end of September, HUF 11,718 billion rested in government securities that can only be sold to the public. In addition, they also have HUF 1,109 billion worth of institutional government bonds and discounted treasury bills.

There is no need for a new residential paper now

There are only data from the end of August how many customers have residential government securities: nearly 823,000 people. This is 6,800 more than the level at the end of 2023, but in the third quarter of this year, the number of government bond investors among the population decreased by 18,000, the reason for which was the summer expiration of the first MÁP Plusz series.

But within the Hungarian savings pie, the share of government securities remains high, accounting for 23 percent.

From its announcement, it appears that the ÁKK considers the range of retail government securities to be complete, so after the renewal of MÁP Plusz at the end of spring, there is no need for a new product for the time being, as the current range offers everyone a favorable investment opportunity.

Institutional bonds sold more than expected

The sales of all products on the institutional HUF market are proportionally higher than the annual plan, and even exceed it for 3- and 5-year papers. Despite this, institutional forint bond issuance will not be suspended in the fourth quarter either, but they have indicated that if they see additional demand at the auctions, they will only increase sales with smaller increases. This is also good news in that it can lower secondary market yields.

Another favorable development is that, due to the above, foreign currency resources are no longer needed in the fourth quarter. Therefore, contrary to previous plans (and in view of the 30 percent foreign currency self-limitation), Hungary will not be participating this year to sell foreign exchange bonds to the Chinese market.