The forint has been running for a month already – should we buy euro or forint government bonds?

It is not so much the fall of the 400 level that is really interesting when looking at the forint exchange rate, but the trend-like weakening that has been going on for more than a month. The turnaround can be done on September 20, when you could buy euros for HUF 392.7 on the interbank foreign exchange market, since then the quotation has increased by around HUF 10, i.e. in just over 30 days, the Hungarian currency depreciated by 2.55 percent compared to the euro. In the meantime, the regional currencies did not do well either, but for example the Polish złoty “only” weakened by 1.7 percent against the euro.

The recurring dilemma of investing: in forints or euros?

Among other things, the euro exchange rate of 402 or above makes the decision about savings one more difficult. Hungarian retail and some institutional government bond investors receive interest on their existing bonds on a weekly or monthly basis: a number of securities do not pay once a year, but four times (Fix Hungarian Government Bond, Bonus Hungarian Government Bond, Euro Hungarian Government Bond, and the BUBOR-following institutional bonds government bonds).

Those who don’t want to sell their bonds and don’t want to use the interest on something else, are faced with the fact that the interest rate difference between HUF and euro government securities on the government securities market has decreased significantly:

• the interest rate of Hungarian government bonds in euros is 3.49 percent per annum
• 5.75 percent for one year in HUF can be achieved with MÁP Plus, or 5.6 percent after deduction of redemption costs with Fixed Hungarian State Paper

In other words, in addition to the currently valid interest rates, government bonds issued in forints offer a higher interest rate of 2.26 percentage points. But as can be seen above, the euro-forint exchange rate can move by the same amount or more in a month.

This is how the exchange rate and interest rate math looks like

It is worth looking at how much the investment of those who bought MÁP Plus and Euro Hungarian State Paper (EMÁP) for HUF 100,000 a month ago is now worth.

1. One hundred thousand forint MÁP Plus monthly return: 479.2 forints, this is how it turned out HUF 100,479.2unk.

2. On September 24, the euro-forint quotation closed at 393.6, which means that our HUF 100,000 investment was enough for 254 euros. The one-month yield of this is only 74 euro cents. But calculated with the euro-forint exchange rate on October 24, this is already 254.74 euros HUF 102,557.8is worth

How long will the forint weaken?

Anyone who is now faced with the problem of reinvestment should proceed as follows. At the time of writing this article, the euro-forint stands at 402.6, and similarly to the example above, a decision must be made on an investment of HUF 100,000.

1. By choosing MÁP Plus, in one year we will have HUF 105,750 from HUF 100,000.

2. If we buy euros now and then EMÁP from that, then the initial 248.4 euros will be 257 euros in a year, which is HUF 103,490 at today’s exchange rate. If, on the other hand, the HUF weakens in one year by the current difference between the two interest rates (2.26 percentage points), then the two investments bring essentially the same return, and the difference between the two interest rates is compensated by the change in the exchange rate.

Seeing the current euro-forint trend, reaching this level is not at all unthinkable: the quote should reach 411.7.

So, if you think that this exchange rate level is realistic within a year, or that an even worse situation may arise from the forint’s point of view, it is better to choose government bonds issued in euros. On the other hand, those who do not expect such a weak forint, but rather hope for a return to levels below 400, are clearly better off with household bonds issued in forints.

Demand for EMÁP has skyrocketed

Seeing the trend-like devaluation of the forint, the interest in the currently available euro-denominated domestic government securities has skyrocketed. Although data is only available with a delay, it can be seen that at the end of September, Hungarians already held 133 million euros in this euro-denominated government paper. A month earlier, however, the amount held by investors was only 69 million euros. In other words, the sight of HUF 390-393 already brought a lot of new buyers to the EMÁP market, the stock of 2027/U almost doubled in just 30 days.

Seeing this, it’s no wonder that the Public Debt Management Center used the original sales framework (150 million euros) it doubled on October 14which thus changed to 300 million euros.

On December 18, EMÁP owners should pay attention to the 3-month EURIBOR rate, the interest rate of the 2027/U bond will change accordingly. If the interest rate cycle were now, the interest rate would change to 3.086 percent per year.

In total at the end of September a population with 1.38 billion euros worth of Hungarian government securities had, it consists of 9 bond series, of which one is currently being sold.