Hungarian Investors Rush to Buy Inflation-Linked Bonds Before Deadline

Published: December 05 2023

Hungarian investors are rushing to buy inflation-linked bonds before the deadline, as the previous series of bonds with inflation-linked interest rates will no longer be available for purchase for the next 18 months.

The new series of bonds, called Prémium Magyar Állampapír (PMÁP), offers a fixed interest rate for the first 1.5 years, which is significantly lower than the inflation-linked interest rates of the previous series. This change has motivated savers to buy the soon-to-be discontinued bonds before the deadline.

In the last few days before the deadline, there has been a surge in the amount of money invested in the PMÁP bonds. In fact, last week's sales of the bonds reached a record high of nearly 190 billion Hungarian forints, surpassing the previous record of 217 billion forints.

The majority of the investments have been directed towards the new series, PMÁP 2033/I, which offers more favorable conditions in the short term. This is evident from the fact that the 2032/I series, which was launched on Wednesday, received only a small portion of the total investment amount.

The PMÁP 2033/I series has become the most popular retail bond, with investors buying nearly 780 billion forints worth of bonds. When considering all the PMÁP bonds together, the total value of the bonds in circulation is estimated to be around 7,000 billion forints by the end of November.

In conclusion, the rush to buy inflation-linked bonds in Hungary before the deadline has resulted in record-breaking sales. The introduction of a new series with fixed interest rates has led to increased investor interest and significant investments in the bonds.

What is the Prémium Magyar Állampapír (PMÁP)? The Prémium Magyar Állampapír (PMÁP) is an inflation-linked bond issued by the Hungarian government.

Why did Hungarian investors rush to buy PMÁP before the deadline? Hungarian investors rushed to buy PMÁP before the deadline because the conditions for the new series of PMÁP were less favorable. The new series offers a fixed interest rate for the first 1.5 years, which is significantly lower than the inflation-linked interest rate offered by the previous series.

When did the Hungarian government close the sales of PMÁP? The Hungarian government closed the sales of PMÁP earlier than originally planned, on November 28, 2022.

Was there a significant increase in the sales of PMÁP before the deadline? Yes, there was a significant increase in the sales of PMÁP before the deadline. The sales of PMÁP reached a record high in the last week before the deadline, with investors purchasing PMÁP for a total of 190 billion Hungarian forints.

Did the sales of other government bonds also reach a record high in Hungary? Yes, the sales of all government bonds aimed at individual investors reached a record high in Hungary. The total sales of government bonds exceeded 226 billion Hungarian forints last week.

What is the most popular series of PMÁP among investors? The PMÁP 2033/I series is considered the most popular government bond among individual investors. It was purchased for a total nominal value of nearly 780 billion Hungarian forints.

What is the interest rate for the new series of PMÁP? The new series of PMÁP offers a fixed interest rate of 9.9% for the first 1.5 years. It will only start following inflation in April 2025, with an initial interest rate premium of 0.5 percentage points and an increased premium of 1 percentage point in the last 3 years.

How profitable can the PMÁP be in the future? Considering the expected average inflation rate of around 17.8-17.9% this year, even the lowest interest rate premium PMÁP series can generate an unprecedented interest rate of over 18% in the next interest rate period. Higher interest rate premiums will result in even higher interest rates, with some bonds providing profits exceeding 19% for a year after the interest rate turnover.

Why did the Hungarian government introduce a new series of PMÁP with a fixed interest rate? The Hungarian government introduced a new series of PMÁP with a fixed interest rate to attract investors. The first interest rate period of the new series is quite long, approximately 1.5 years, and the interest rate does not adjust to inflation during this period. The inflation-linked interest rate will only start in April 2025, gradually increasing over time.