Turnaround for investments: there are not many arguments in favor of Premium Hungarian State Paper

In the first half of the year, there were no complaints about domestic inflation processes, the six-month average consumer price increase was 3.75 percent. If the second half of the year also brings similar price changes, and the average inflation for the entire year is around 3.7-3.8 percent, then

next year, retail investors will be able to completely reorganize their government bond portfolios.

It is about the Public Debt Management Center recent data according to private investors at the end of June 11,541 billion HUF worth of residential government securities rested, and within this, the weight of the inflation-tracking Premium Hungarian State Securities (PMÁP) is still significant.

Numerically, HUF 7,138 billion were held in PMÁP at the end of last month, i.e. the share was almost 62 percent within residential bonds.

The former favorite has switched to low interest rates

However, due to the current inflationary trends, many people may decide to withdraw from their PMÁP investments. If the average inflation in 2024 is below 4 percent, there will not be many arguments left in favor of the PMÁP, even with the interest premium.

The only PMÁP series currently available (2032/J) will have its interest cycle next April, and for one year from then, the interest rate will be the average annual inflation of 2024 plus half a percentage point premium. If the forecasts are confirmed and inflation really does not disappear in the second half of the year, then the 2032/J bonds will yield only 4.2 percent interest between April 2025 and April 2026.

Those who hold the previously issued PMÁPs (currently not available for purchase) are somewhat better off, some series have a higher interest premium of up to 1.5 percentage points, but these papers can also only yield 5.2 percent interest next year.

Which will hardly be attractive, it is easy to find government securities with higher interest rates, so it is really safe to say that the PMÁP portfolio will not remain at the current level.

When should you sell PMÁPs?

Timing is a big question, that is, whether there is a good time for departure at all. You can exit PMÁPs at any time, the price quotation works at the treasury, the cost of selling before maturity is 1 percent of the face value. There is no interest loss, the treasury credits the settled interest on a daily basis.

The best advice is probably that for each series (there are still around 20 for retail investors, 3 will expire next year) it is worth waiting for the end of the interest period of the given year and then deciding on the sale.

In this way, the currently still high annual interest rates of 17.9-19.2 percent can be maximized.

What can be bought instead of the inflation-tracking PMÁP?

If you are looking for an alternative to PMÁP, you can choose from these on the government securities market:

• traditional/institutional government securities: 6.4 percent annual yield can currently be fixed for 10 years, if you buy this bond today, the yield will not change until maturity, so it will not be affected by inflation – it is a good choice if the consumer interest rate remains below 6.4 percent in the next 10 years price change
• fixed Hungarian government paper: here the term is 3 years, the annualized yield is 7.17 percent, but it cannot be ruled out that the nominal interest rate of future series will be lower than the current 7 percent
• Hungarian government paper plus: 5-year term, hybrid solution, has the characteristics of bonds and bank deposits. Its average annual return is 6.73 percent. After investing one million forints (due to the capitalization of the interest), the saver will be richer by 386 thousand forints after 5 years. Here too, the interest conditions may change for later series.

There has already been a big wave of reorganization

A larger wave of PMÁP sales would not be considered an extraordinary event, retail investors have acted similarly in the past, when seeing rising inflation, they sold their (old) Magyar Állampapír Plusz papers en masse and bought Premium Hungarian Állampapír instead.

A Hungarian State Paper Plust was renewed by the State Debt Management Center from June precisely because the popularity of PMÁP decreased with the fall in inflation and an attractive alternative was needed, otherwise there was a chance that the demand for residential government securities would fall and the capital would look elsewhere (real estate market, stock market, investment funds) place for yourself.