Hungary retail gov't security strategy turns around, ÁKK 2021 outlook not bright
In the amended 2020 financing plan the ÁKK writes that retail buybacks and redemptions are expected to be HUF 590 billion higher and it also expects a HUF 900 billion lower retail sales volume compared to original plans.
To put these figures into perspective we compared then to the original 2020 financing plan. The comparison shows that the ÁKK had origianally projected HUF 4,168 bn worth of gross issuance in retail government securities that was cut by over HUF 900 bn to HUF 3,255 bn.
This is a staggering reduction. Considering that the ÁKK expects HUF 3,768 bn worth of retail government security maturities in 2020, the difference comes to HUF 513 billion.
more precisely, gross issuance pencilled in for this year does not cover gross maturities on the market of retail government securities.
Additionally, the updated financing plan expects HUF 1,100 bn net issuance this year therefore the HUF 513 bn minus is aggravated by the debt manager's expectation for HUF 590 bn worth of retail buybacks and redemptions.
this means that instead of the originally expected huf 400 bn net issuance, the ÁKK now plans HUF 1,100 bn worth of net decrease in the stock, which gives us a HUF 1,500 bn difference between the original and the new targets.
However, the ÁKK also stressed that the medium-term strategic goal of increasing the outstanding debt held by retail investors from the end-2019 level of HUF 7,766 billion to HUF 11,000 billion by 2023, is maintained.
Retail government securities are not doing so well
We have recently reported that retail government securities did not show such a stellar performance in the first quarter of 2020 and the net growth in their stock did not reach even HUF 30 bn due to buybacks and redemptions.
Demand for the 'superbond' has been diminishing for weeks and only HUF 144 bn of it were subscribed in March and merely HUF 64 bn in April so far. Subscriptions totalled HUF 20 bn last week and if this rate is maintained, the monthly tally will be just about HUF 100 bn.
Although the numbers attest that there was some palpable demand for the inflation-linked Premium Hungarian Government Security (PMÁP) in January-March, it likely had to do with inflation accelerating in the first few months. At the same time, the heavy blows delivered by the coronavirus pandemic to the economy should disperse expectations of inflation remaining high in the long term, while this instrument might be able to steal the show from the 'superbond' only in a higher inflation environment.
We have reported various times that the diminishing demand for retail government securities is related to the coronavirus outbreak. Treasury sales points have been closed, opening hours in post offices and bank branches have been restricted, which made purchases difficult for those that had not already had online access to government security transactions. Not to mention that the panic-buying induced by the pandemic suggests people were rather buying essential goods (e.g. toilet paper in bulk, who knows why) than thinking about their longer term savings.
The real bummer is that private banking customers have also stopped buying the MÁP Plus. In many cases they have even opted for redemption in hope that they will be able to invest in something more lucrative on the stock markets that were in tatters as a result of the pandemic.
Note that several thousands of billions of forints worth of retail instruments will reach maturity over the next few months, and the ÁKK does not believe that a significant share of the proceeds will be reinvested in government securities.
The ÁKK evidently wants to assign a smaller role to retail government securities in financing the rising public debt this year. A larger role will be given to institutional forint and FX bonds. Read more about this by clicking on the links below:
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