Retail investors have bought more than HUF1 trillion (€3.1bn) of the new retail bonds – the Hungarian Government Security Plus bonds – in the four weeks since their launch, Finance Minister Mihaly Varga announced on July 1.
In the first week, households subscribed HUF529bn of the HUF100bn offering – an all-time high. Subscription in the second week reached HUF161bn, and it came to HUF194bn in the third week. In the fourth week, the subscription was HUF132bn.
The Plus bond coupon gradually rises from 3.5% to 6% over its lifetime, which makes it the most attractive government security on the market for retail investors. The debt manager reassured households that there is no upper ceiling on subscriptions as the buying frenzy continues.
The coupon will reach 3.5% at the end of six months and 4% at the end of the first year. Afterward, half a percentage point will be added to the coupon each year, which means the bonds pay 6% in the final year of their term. The new retail bond offers the highest yield in every state of its maturity.
Over a five-year period, investors will realise a HUF273,500 return on HUF1mn investment. Analysts said the new security, dubbed the “super retail bond,” should remain a popular investment if inflation remains muted. The new retail bond is also exempt from the capital gains tax and offers great flexibility as investors can withdraw their savings at any time.
The state debt manager financing goal calculates with the subscription of HUF800bn in government securities this year. This is in line with the broader goal of the government. Varga earlier said the cabinet aims to raise government bond stock held by retail investors to HUF11 trillion by 2023 from the current HUF8 trillion.
Financing public debt will become more balanced with the launch of the new government bond as households are deemed as reliable investors, Varga added. The state debt manager has sought to reduce the share of foreign-financing debt by offering lucrative premiums on retail bonds for households.
The outstanding amount of retail forint securities has doubled in the last three years and has now reached 25% of the total. The average maturity of the instruments has also increased in recent years.
Although there is no breakdown of the sale of other government securities, analysts believe new subscriptions dropped. Savings are also being redirected from bank accounts and investment funds and also from the high cash reserves. This latter is above the EU average at 15% of the GDP.
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