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MNB sets mortgage bond purchase scheme cap

MNB

The National Bank of Hungary (MNB) will cap its purchases of mortgage bonds at 70% in a scheme to be introduced early next year, the central bank said on Thursday, as reported by state news agency MTI. The MNB said it will start buying mortgage bonds on the secondary market in January, and on the primary market in February.

"The combined upper limit of potential purchases per issuer is 70% of the total volume in circulation, and the [MNB] seeks not to exceed 70% with its share in any given series either,"  the central bank said in a statement outlining the terms and conditions of the mortgage bond purchase scheme. 

The central bankʼs Monetary Council decided at a monthly policy meeting in November to start buying mortgage bonds with the aim of flattening the yield curve. Policy-makers also decided to launch an unconditional interest rate swap facility with the same goal.

Detailing the unconventional policy measures on Thursday, the MNB said it would start buying mortgage bonds on the secondary market in the second half of January and on the primary market from February 15. It will buy publicly issued, fixed-rate mortgage bonds from Hungarian issuers, denominated in forints, with an original maturity of at least three years and a current residual maturity of one year.

In the case of new issues, the purchase program will include only mortgage bonds purchased in an auction on the platform of the Budapest Stock Exchange that will be listed and continuously quoted. Household mortgages must account for at least 90% of the bondsʼ normal collateral.

The MNB said it would hold tenders for the unconditional interest rate swaps every other Thursday, starting on January 18. It confirmed a HUF 300 billion allocation for the swaps for the first quarter of 2018.

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