László Búzás, Managing DirectorLászló Búzás, Managing Director ÁKK Rt.ÁKK Rt.

JuneJune 17 17, 2002, 2002

The Government Bond Market

in Hungary

2002

The Debt

• Gross debt: HUF 7720 billion (2001)• ~ 52,3% of GDP• 79% Bonds and T-Bills – 21% Loans• 70% HUF – 30% foreign currency denominated

(foreign currency debt has been continuously

decreasing since 1997 according to the debt

management strategy)• External debt: 44%

2002

EMU Market Conventions

Market Harmonisation

2002

Government Debt/GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Market forint debt Non-market forint debt FX debt

The Maastricht criterion

The Instruments

• Treasury Bills with 3,6 and 12 month maturity• 3,5,10 and 15 year bonds• Less bond lines - benchmarks• Larger bonds series - liquidity• retail paper: 1 and 2 year maturity• No private placements and, as a rule, no loans

2002

2002

Volume of Government Bonds Outstanding vs. Benchmark Issue Size (US$ billions)

SWITZERLAND

SWEDEN

NETHERLANDS

CANADA

GERMANY

BELGIUM

JAPAN

ITALYFRANCE

UKUSA

0

2

4

6

8

10

12

14

16

18

20

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Amount Outstanding

Benc

hmar

k Is

sue

Size

HUNGARY

2002

Primary dealers

• 158 auctions in 2001(104 T-bill and 54 bond)

• Reverse auctions (11)

• Primary dealers: 8 banks, 5 brokerage firms

• 84% of issuance

• 90% of secondary market turnover

2002

Ownership Structure of the Domestic Marketable Debt

1997 1998 1999 2000 2001National Bank of Hungary 4,7% 1,9% 0,7% 0,0% 0,0%Commercial banks, spec. fin. int. 32,1% 30,1% 20,0% 19,2% 18,1%Households 18,4% 21,6% 22,2% 21,5% 20,4%Foreign investors 3,8% 10,9% 13,5% 19,8% 24,7%Voluntary Pension Funds 1,8% 2,8% 5,2% 7,2% 7,8%Investment Funds 8,7% 8,7% 11,0% 7,1% 5,7%Insurance companies 9,7% 9,6% 11,5% 12,4% 13,0%Companies and other investors 20,8% 14,4% 15,9% 12,9% 10,3%Total 100,0% 100,0% 100,0% 100,0% 100,0%

2002

Foreign Investors

• Foreign holding of HUF denominated debt: HUF

1272 billion

• An increase of approximately HUF 200 billion since

December 2001

• HUF 100 billion in T-bills

• 40% of marketable bonds

• Average life 3.2 years

2002

EU-accession

• The real change comes with EMU-membership

• Best practices of the peer EMU-member countries

• Main goal: creation of a competitive, efficient and

EMU-compatible government bond market

• Market development

• Market harmonisation

2002

• Price quotation

• Settlement circle

• Coupon payment frequency

• Yield calculation

• Business days (TARGET)

• Redenomination

Market Harmonisation

Market Conventions

2002

Market Development

• Auction Rules and Procedures

• Abolition of the minimum price

• Amount 34% instead of 25%

• Exclusion of the off-market price

• Non-competitive bids

• Auction frequency

2002

Product Innovation

• More standardized products

• Abolition of the 2 year T-bond and the 5 year FRN

• Lengthening of the yield-curve: Introduction of the

15 year bond

• Less bond series

• Larger bond series

• Issuance of T-bills for liquidity management

purposes

Primary Dealers: The Future

2002

•Liberalisation of capital movements

•Non-resident (remote) primary dealers

•New category of market makers (dedicated

dealers, auction participants)

•Widening of the investor base

2002

Secondary Market

• Change in the benchmark quotation

• Buy-back auctions

• Exchange auctions

• Repo facility

• Price quotation instead of yield quotation

• Increased requirements for price quotation (amount,

spread)

• Multilateral international trading platform

More information

www.akk.hu

Thank you for your attention

2002