Hungary's retail gov't security premiums could fall and tighter bond holding rules on the way - EcoMin

At the press conference, Márton Nagy briefly explained the new rules for investment funds, namely that in order to further encourage the purchase of domestic government securities, the government has decided that from October 2025 investment funds will have to hold at least 3% of their assets in short-term government securities, in addition to the 5% of government securities with a maturity of more than 12 months.

From April 2026, the holding requirement for investment funds will increase to 6+4%, while for bond funds the increase will be more significant, to 10+5%.

We will also set separate quotas for short and long government securities,

the minister said, adding that the aim for the financing of the state is

to always have money available, to always be able to finance itself on the market as cheaply and stably as possible.

Márton Nagy explained that retail funding has always been an important element in achieving this goal, but it is also the most expensive.

Spreads on retail government securities are 50-70 basis points higher than those on institutional papers, while interest expenses have risen significantly, he said. To deal with this situation,

some of the retail government securities could be released and transferred to institutional government securities, and the weight of institutional government securities in debt financing could also be increased.

Márton Nagy said

this could lead to further cuts in retail government security rates,

adding that this would not bring rates in line with institutional papers and that households should be given a premium, but that

the premium, which is significant, could be reduced.

Márton Nagy also pointed out that retail government securities are performing better than expected, referring to the fact that a significant part of the interest payments from the Premium Hungarian Government Security (PMÁP) continues to flow back into retail government securities.

What will happen to investment funds?

As Márton Nagy puts it, the first step was to define what kind of funds there are.

Bond funds, money market funds and mixed funds will be expected to comply with these new rules, he said, adding that the details will be published this week in the form of a public consultation (the rules have already been approved by the government).

The minister also mentioned that the regulation of foreign holdings in investment funds will be discussed. There are currently two types of funds: those denominated in forints and those denominated in foreign currencies, and although there is already a rule on what assets can be held in each fund, there is no rule on how a fund can change its currency, Márton Nagy pointed out.

They can change their currency every 5 years, we have changed that,

he added. He also pointed out that a consumer protection rule comes into play here: if the fund is denominated in forints, it should be considered a forint fund, and in this case the proportion of foreign assets should not exceed 20%.

In the case of Hungarian funds, foreign holdings must be reduced, and if the fund holds at least 80% foreign assets, the fund manager can do anything with them.

He also mentioned the synthetic positions that are put together with swaps, and these should also be corrected.

We have taken away a little bit of the freedom of the fund managers not to jerk around the structure of the fund, which is no longer even close to what was originally communicated to investors,

he added. Márton Nagy also touched on a number of other topics at today's press conference, which we have covered in the article below:

Cover image (for illustration purposes only): Getty Images