The yield on Hungarian government bonds is falling, so much so that they are already approaching British yields – and this is the latest sign that investors are supporting the Tisza government’s plans to improve the economy and join the euro zone. writes Bloomberg.
The yield on Hungary’s 10-year government bonds fell to 5.16 percent, which is only half a percentage point below the yield on British government bonds with a similar maturity – British government bond yields reached an almost two-decade high in May, close to 5.2 percent, after the ruling Labor Party lost the local elections and oil prices skyrocketed.
The difference has shrunk enormously since March, when bondholders demanded an extra yield of 2.6 percentage points for holding HUF bonds compared to British government bonds. All this while the two countries are in two different credit rating categories: S&P Global Ratings currently ranks Hungary’s public debt obligations in the lowest category, while the United Kingdom has a high investment rating.
Hungary’s situation, on the other hand, is greatly improved by the international trust in the Tisza government, while the United Kingdom’s situation is affected by domestic political uncertainties, such as British Prime Minister Keir Starmer’s resignation a few days ago also makes it difficult.
Although the Poles were overtaken, Hungary still pays higher interest rates on its loans than some Eastern European countries, such as Bulgaria or the Czech Republic, which recently joined the eurozone. The yield of the Hungarian benchmark bonds is also 2.3 percentage points higher than the German one, although this difference, i.e. the risk premium, has halved in the last three months. “If Hungary’s new government aims to adopt the euro and achieve convergence, domestic bond yields could approach those of eurozone member states,” Fidelity International bond portfolio manager Philip Fielding told Bloomberg.
It recently turned out that the State Debt Management Center will again reduce the interest rate on several residential government securities – this is bad news for small investors, but the financing of the state becomes cheaper as a result, which may already affect this year’s budget. The expensive financing of the Hungarian state (which was at its peak in 2022-24, standing at a European record level at that time an amount of around 4 percent of GDP had to be used for interest expenses) reduces the budgetary room for maneuver and diverts funding from other areas, at the same time it also means a competitive disadvantage. The reduction of interest expenses appeared as a top priority in the program of the Tisza Party, and Finance Minister András Kármán has repeatedly indicated that they see this as one of the biggest potential sources of financing their election promises.
