Peculiar developments discovered at retail Hungarian government securities

Retail gov't securities over HUF 9.3 trillion

According to the latest statistics, households held HUF 9,320 billion in HUF government securities at the end of July, an increase of HUF 180 billion over June and nearly HUF 700 billion since the end of last year.

It is interesting to note, however, that the month-on-month increase in July was smaller than in June, despite the fact that the introduction of the social contribution tax was expected to drive demand higher, as government securities have an advantage over other savings products as they are exempted from the levy.

In addition, last month's increase was almost exclusively due to the Premium Hungarian Government security (pmáp), while all other major categories apart from the PMÁP experienced a decline.

The holdings of the inflation-linked premium instrument grew by HUF 280 billion in July, marking a new milestone for the scheme, as

it exceeded the HUF 6,000 billion threshold for the first time.

Meanwhile, savings in the Hungarian Government Security (MÁP) Plus continued to ebb, by EUR 93 billion last month to EUR 1,134 billion, and now holdings of the bonus government security (BMÁP) have failed to increase.

The PMÁP has reached a new high despite the fact that inflation is slowly falling. However, this year's average inflation is still expected to be well above last year's, so the paper should still offer good returns next year.

The demand for PMÁPs was particularly strong in the last week of July, when the news came that the ÁKK was launching a new series with a longer maturity and a lower interest rate premium, so many people tried to buy the old PMÁPs in the last days.

In the last week of July, gross sales of PMÁP exceeded HUF 150 billion, the last time we saw such strong demand for the paper was in the last weeks of January.

Meanwhile, at investment funds...

Based on the above we can state that

it was not necessarily the exemption from the social contribution tax, rather than the ákk taking the old PMÁP off the shelves that brought about a more significant demand for government securities, so the PMÁP effectively saved July.

In comparison, it is at least interesting to note that also in July, the stock of investment funds classified as retail increased by HUF 460 billion, and if we look only at the turnover of investment notes,

net capital inflows into funds amounted to HUF 250 billion, which is much more than the HUF 180 billion of government securities in the same period.

All this was achieved by investment funds starting from a disadvantage because of the liability to pay both the interest tax and the social contribution tax.

Bond funds continued to be the most popular among investors in July, with the following funds having the highest investment note turnover:

Cover photo: Luke Richardson via Getty Images