After the Great Inflation, Retail Government Bonds No Longer Yield Sufficient Returns
A rising number of investors are transferring the yields received from previously high-paying retail government bonds into other, higher-risk investments, according to László Domokos.
In the first quarter of this year, the state paid out more than 900 billion forints in interest and matured capital to retail clients, who had previously been vigorously encouraged to purchase premium government bonds. However, as inflation followed, diminishing interests and deteriorating conditions have gradually turned small investors away from government bonds.
According to data from the Government Debt Management Agency (ÁKK), even in the first 14 weeks of this year, more than 1,140 billion forints' worth of retail government bonds were sold. However, data from the National Bank of Hungary (MNB) indicates that despite substantial payouts in February, this did not necessarily increase the appetite of small investors. “During the times of higher interest payments, there was a temporary rise in demand for retail government bonds, but the numbers show that small investors did not reinvest the paid-out interests and capitals in full,” says Bernadett Herman, the chief expert at Bank360.hu. Those still trusting in government bonds choose new investments from the current offerings, with the Fixed MÁP, which pays interest quarterly, becoming increasingly popular.
However, private banking clients with larger financial assets now find the interest rates offered by the state insufficient, thus they are redirecting their yields into other investments, such as stock funds, mixed or absolute return funds, or even looking for savings in foreign currencies.