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Govʼt to launch retail bond with gradually rising coupon

Hungaryʼs government has decided to launch a bond for retail investors that pays a graduated coupon rate of 3.5% to 6.0% over five years, Minister of Finance Mihály Varga said on Wednesday, as reported by state news wire MTI.

Minister of Finance Mihály Varga

The coupon on the five-year bond will be 3.5% at the end of six months and 4.0% at the end of 12 months, Varga said. Half a percentage point will be added to the coupon each year thereafter, meaning the bond will pay 6.0% in the final year of its term.

Varga said the launch of the bond, which will be available from June, would help achieve the goal of doubling the stock of retail government securities to HUF 11 trillion in five years. The new bond will further strengthen householdsʼ savings while also further reducing the economyʼs external vulnerability, he added.

In an effort to make retail government bonds even more attractive to small investors, a single securities account will be established that is accessible through branches of the Treasury and state-owned postal company Magyar Posta, as well as at commercial bank branches and through the network of home savings banks, Varga explained.

At present, the highest rate on a retail Hungarian government security is 5.80% for Baby Bonds, which pay 3 percentage points over the rate of inflation. The bonds are available only to Hungarian children born in the country since 2006, or for Hungarian children born abroad since July 1, 2017.

The next highest rate, 4.50%, is paid on Premium Hungarian Government Securities (PMÁPs), 1.7 percentage points over the rate of inflation, which was an average annual 2.8% in 2018.