Measures to boost demand for government securities ‘extraordinarily effective’

Measures the government took in the summer to boost demand for government securities have "proven extraordinarily effective", resulting in marked increases in the stock of debt held by both retail and institutional investors, the economic development ministry said on Tuesday.

Retail government securities are exempt from two taxes introduced in July, a 13 percent social contribution on investment returns and a 15 percent tax on capital gains, and this helped to generate direct and indirect demand for around 1,200 billion forints of securities, the ministry said.

Retail deposit stock fell by around 400 billion forints and demand reached 11,723 billion forints by the end of August. At the same time, households’ holdings of government securities climbed to 11,942 billion, exceeding deposit stock — an unprecedented development — the ministry said.

The ministry noted that banks were required from Oct 1 to start informing retail clients of the returns they might have seen on their savings if they had put them in government securities, rather than bank deposits, in the past year.

Institutional investors’ holdings of government securities grew by 40 percent, close to 1,800 billion forints, in just shy of three months to August, as the government allowed lenders to deduct part of the bank levy against increases in stock of bonds and raised government security thresholds for investment fund portfolios.

Since the measures were rolled out, non-residents’ holdings of government securities have dropped by almost 84 billion forints and their share of state debt has edged down to below 30 percent, the ministry said.

T-bill issues exceeded the annual target by more than 280 billion forints and bond issues by some 640 billion, while yields have fallen “markedly”, the ministry added.

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