Non-residents' Hungarian government bond holdings exceed HUF 5,000 bn

According to data published by the Government Debt Management Agency (ÁKK), non-residents’ holding of Hungarian government securities totalled HUF 5,009 bn last Thursday. The last time their HGB stock rose this high was in mid-February and the all-time high was reached at HUF 5,804 bn right before Christmas.

As you can see on the chart below the yields on Hungarian government securities dropped markedly over the past few weeks to record lows on virtually all maturities. This is related to the unfazed rate cut cycle of the Hungarian central bank and expectations on further measures by the NBH, as well as to the ongoing global yield hunt which has sparked significant drop in yields on other emerging and some developed markets too.

The yield on the 10-year benchmark bond dropped to below 5%, in parallel with this its Polish peer is testing sub-4% areas and the Czech instrument is occasionally below 2%.

The decline in Hungarian yields came about in tandem with a marked forint appreciation (also to a three-month high) and Hungary’s 5-year CDS spread dipped to around 280 basis points.

Owing to the recent drop in the CDS spread over the past few weeks the forint risk premium on 5-yr HGBs reappeared and that could have also increased the appeal of HUF instruments. As we pointed out in April, when the CDS spread was stuck at relatively high levels and the yields on benchmark HUF bonds declined fast this premium vanished, creating a possible hindrance to any further drop in local yields.

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