According to the central bank’s announcement, from January 2018, new methods will help to boost long-term loans and reduce long-term yields. The NNB is also involved in the mortgage bond market, offering new interest rate swaps.
Here are the details of the program
The NNB started its market mortgage bond purchases in mid-January 2018 and the first MIRS tender was held.
According to the specialist:
“The NNB will participate in the new mortgage bond auctions from mid-February, after which it will buy on the secondary market, if necessary. Purchases will be capped at 70% of the total stock per issuer and per series. “
The two non-conventional instruments are
- a general interest unconditional monetary policy swap instrument, or
- a targeted mortgage bond purchase program.
The purpose of the asset introduction is to help increase the rate of long-term loans and to help reduce long-term yields
1. An unconditional monetary policy swap instrument
“The amount of MIRS introduced as a general monetary policy instrument for the first quarter of 2018 is HUF 300 billion, and the NNB will decide on the announced amount of each tender.”
The NNB monitors and compares Hungarian and international yields.
Similarly to the previous IRS program of the NNB, the Bank announces and sells 5-year and 10-year maturity assets to partner banks on Thursdays. It will be available from January, where the central bank will announce a minimum fixed interest rate
A significant difference from previous central bank IRA programs is that a
- The use of MIRS is not conditional,
- therefore, it is not possible to close transactions with the NNB before maturity.
2. Targeted mortgage bond purchase program
The NNB expects the mortgage bond purchase program to increase mortgage bond issuance and stimulate market activity. The NNB will provide mortgage loan facilities to support banks that are willing to quote new mortgage bonds, the terms of which will be in place by 28 February 2018.
In the framework of the program, the NNB buys domestic issuers’ mortgage bonds, denominated in HUF, denominated in Hungarian forint, with a minimum 3-year original and a 1-year current maturity.
New releases are conditional
- the auction took place on the Budapest Stock Exchange,
- the issuer undertakes to initiate the listing, and
- Continuous quotation is provided.
The NNB purchases on the secondary market by entering into over-the-counter and over-the-counter transactions in accordance with the principles of market equality and equal treatment.
If a new issuer is eligible, the NNB will make a 50% offer on the paper! It reserves the right to place an auction bid even in the absence of an application.
NNB expects mortgage bond purchase program to increase mortgage bond issuance and boost market activity
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