Hungarian debt manager announces new government security in surprise move

ÁKK is launching a series of new government bond series, including PMÁP, BMÁP and FixMÁP.

New 5-year FixMÁP on the way

According to the latest documentation, the sale of the existing FixMÁP will be closed and new paper will be available for purchase from Wednesday next week.

What's new is that in addition to the existing 3-year instrument, a 5-year FixMÁP will be launched next week, also offering 6.5% interest per year.

A new series of FixMÁP was released at the end of February.

There will be no change to the 3-year paper, which will continue to be available at an annual interest rate of 6.5%, paid quarterly to investors. The 5-year FixMÁP will be structured in a similar way, i.e. the pro rata share of the 6.5% annual interest will also be paid quarterly.

The interest rate on FixMÁP was last reduced at the end of September last year, from 6.75% to the current 6.5% (it was originally set to start at 7% in January 2024).

The only question now is what the future interest rates will be, but it is safe to say that the already popular FixMÁP, with its 6.5% interest rate that can be fixed for 5 years, could get a new boost in sales.

A new 10-year premium government security will be launched

In addition to the new FixMÁPs, a new PMÁP will also be launched, with the documentation indicating that the new 10-year premium government security will mature in 2035. It will also be available for purchase from 23 April and the interest rate premium will be essentially the same as its predecessor, the 2032/J.

The new 2035/I1 issue carries a coupon of 0.5 percentage points for the first six years and 1 percentage point thereafter, with the interest rate base being the average inflation rate of the previous year.

In the first interest period, from 24 April 2025 to 24 May 2026, the interest rate will be fixed at 6.5%, so investors will receive 7.03% pro rata temporis for this period,

which is currently higher than the inflation rate calculated by the MNB for this period.

Further reduction in the interest rate premium for the BMÁP

Changes are also on the horizon for bonus government securities, and not in the right direction for investors. The sale of the current series will be closed, and from 23 April Hungarians will be able to buy two new BMÁPs (2029/R1 and 2031/R1) maturing in 2029 and 2031, respectively, under the following conditions:

The interest rate base for the new series will continue to be based on the volume-weighted average yield of the last four successful 3-month discount Treasury bill auctions,

• with a premium of 1% for the 2029/R1 series and
• a premium of 1% for the 2031/R1 series for the first four years, but 1.5% for the fifth and sixth years.

This means that over a four-year period, the spread between the two securities will remain the same, but in the last two years, the six-year security will be reduced by 50 basis points.

The BMÁP will continue to pay interest every three months. Another important change is that the current 3 and 5 year BMÁPs will be extended to 4 and 6 years.

The initial interest rate for both series will be 7.36%.

What's with all these changes?

The ÁKK emphasises that the interest rate and redemption rules will not change, and that the aim of the ÁKK is to allow households to invest their savings for longer maturities and to diversify the retail government bond offering in terms of maturities.

With regard to the new PMÁP, the debt manager emphasises that the longer maturity may also have a place in the investment palette as pension savings.

The announcement also states that in order to support the retail sale of government securities by distributors, the ÁKK, following consultation with the Hungarian Banking Association,

will offer the possibility to exchange government securities repurchased by banks from the public from April 2025.

Under this scheme, distributors can always exchange retail government securities held for their own account for the series currently being sold, which they can then resell to the public in the secondary market.

In order to enable the exchange of government securities, the documents for retail government securities have been amended with respect to the investor universe, it said.

Cover photo (for illustration purposes only): Getty Images