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