Published: November 23 2023
Hungarian State Bonds are offering lower interest rates to investors as the premium decreases. The Hungarian State Debt Management Center (ÁKK) has announced a new series of bonds with an annual interest rate of less than 10%. The interest premium is expected to increase during the second half of the bond's maturity.
Decreased Interest Rates for Hungarian State Bonds
The ÁKK has lowered the interest rates for the Premium Hungarian State Bonds (PMÁPs) in a new bond series. The current series, which pays a premium of at least 0.25% above the average annual inflation rate, will be replaced by a new series starting from November 29th. The new series, with a maturity of 8 years, can be purchased with a starting interest rate of 9.9%. From 2025 onwards, a premium of 0.5% will be added to the interest rate, and during the last 3 years, a premium of 1% will be added. The interest will be based on the average inflation rate of the previous year.
Reasons for Lower Interest Rates
The decision to issue bonds with lower interest rates was justified by the decrease in the consumer price index in October, the reduction of the central bank's base rate to 11.50% in November, and the decline in yields of discount treasury bills to below 8.5%. Although the new bond series offers higher interest premiums than the current series, investors will only benefit from them when inflation is expected to be lower. According to the projections of the National Bank of Hungary, inflation could range between 4.0-6.0% in 2024 and 2.5-3.5% in 2025. The new PMÁP will then have a 0.5% interest premium in the following years.
Limitations for Investors and High Outstanding Debt
Investors are limited to a maximum value of 25 million Hungarian forints when purchasing bonds from this series. Currently, the PMÁP is the most popular retail bond in Hungary, with a total outstanding debt of over 6,600 billion forints. However, the government will have to pay around 1,200 billion forints in interest to the public next year due to this substantial amount, which is why the ÁKK has decided to significantly reduce the interest rates in the new bond series.
Questions & Answers
=== What is the Hungarian State Bonds premium? The Hungarian State Bonds premium is the additional interest rate paid to investors on top of the average annual inflation rate.
What is the new interest rate on the Premium Hungarian State Bonds (PMÁP)? The new PMÁP bond series, starting from November 29, offers an initial interest rate of 9.9% for an 8-year maturity period. There will be a 0.5% interest premium from 2025 and a 1% interest premium in the last 3 years of the bond's duration.
Why did the Hungarian Debt Management Center decrease the interest rates on the Premium Hungarian State Bonds? The interest rates on the Premium Hungarian State Bonds were reduced due to a decrease in the consumer price index, a reduction in the central bank's benchmark interest rate, and lower yields on discount treasury bills.
Who can participate in the Hungarian State Bonds offering? The Hungarian State Bonds offering is open to all investors, including both Hungarian citizens and foreign nationals.
What is the maximum amount of Hungarian State Bonds that can be purchased from one distributor? The maximum amount of Hungarian State Bonds that can be purchased from one distributor is 25 million Hungarian Forints.
How much is the current outstanding amount of the Premium Hungarian State Bonds? The outstanding amount of the Premium Hungarian State Bonds is currently over 6,600 billion Hungarian Forints.
How much interest will the Hungarian government need to pay to bondholders on the outstanding bonds next year? The Hungarian government is expected to pay around 1,200 billion Hungarian Forints in interest to bondholders on the outstanding bonds next year.
