This document discusses primary issuance techniques and promoting secondary market development based on the example of Hungary's Government Debt Management Agency (AKK). It outlines AKK's guiding principles of simplicity, transparency, and liquidity. It describes the instruments issued, including treasury bills and bonds of various tenors. It discusses auction procedures, market structure, and secondary market turnover. It also describes AKK's use of databases to manage government debt.

1. Primary issuance techniques
promoting secondary market
development
Example of the Hungarian Government Debt
Management Agency (www.akk.hu) – stylized facts
by Werner Riecke (werner.riecke@gmail.com)

2. 0%
10%
20%
30%
40%
50%
60%
70%
0
1,000
2,000
3,000
4,000
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6,000
7,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
BillionsofHUF
Publicly issued local currency T-bonds and -bills and
share in total central government debt
Treasury Bonds Treasury Bills Share (RHS)

3. The main guiding principles for
government securities market
development
• Simplicity
• Transparency
• Liquidity

4. Choice of Instruments (case of Hungarian
Government Debt Management Agency)
•Treasury bills
• 3 and 12 months tenor
•Treasury bonds
• fixed coupon bullet bonds
• 3, 5, 10, 15 years tenor
• Let the market create more complex
instruments if there is a demand for.

5. Example: one amortizing bond = four bullet
bonds issued in parallel
Other examples:
Bullet bond = Zero coupon bond + Annuity
Variable rate bond = successive series of T-bills
Secondary market prefers simple fixed income
instruments!

6. Transparency
• Regular Issuance
• Primary placement through auctions
• Publication of the auction calendar
• Refrain from private placements
• Refrain from captive measures
• Use of re-openings and buy backs (also through
auctions) – later on switching auctions

7. Auction calendar (auctions, settlement and
redemption dates)

8. Market structure
• Issuer: GDMA on behalf of MoF
• Settlement infrastructure: Central Securities
Depository and Clearing House
• Primary dealers (nowadays mainly banks)
• binding bid-offer price quotations for benchmark issues on
the secondary market
• Investors – Hungary’s early success in government
securities market development is rooted
• in the presence of institutional investors (insurance,
investment funds, compulsory and voluntary funded pension
schemes)
• appearance of foreign investors in the local currency bond
market

9. Secondary market turnover

10. price/yield discovery in multiple price
auctions, dealing with the “winners’ curse”
• We are not setting a cut-off price or yield, we
decide on the amount to be accepted
• cut-off/average price/yield is a consequence of this
decision
• Decision based on bidding curve chart (visual)
• We may however decide to deviate from the
amount originally offered by +/- 33.3% to
• Reduce the “tail” – difference between
• average and minimum accepted price or
• maximum accepted and average yield

11. Dealing with the winners’ curse in multiple price auctions:
Accepting less dampens the difference between average and minimum
accepted price, accepting more, when bidding curve is more flat
Accepting 250 million of bids
amount Accepting 200 million – smaller tail

12. Creating a yield curve: use X-Y (scatter) instead
of line chart
Date Settlement Date Tenor ISIN Code Security Maturty (days) Yield (%) Change AVG Bid (%) AVG Ask (%) Price (%) Acc. Interest (%)
12.06.2015 16.06.2015 M3 HU0000520168 D150916 92 1.10 0.00 1.20 1.00 99.7197 0.0000
12.06.2015 16.06.2015 M6 HU0000520317 D151223 190 1.09 0.03 1.19 0.99 99.4281 0.0000
12.06.2015 16.06.2015 M12 HU0000520580 D160608 358 1.09 0.00 1.19 0.99 98.9278 0.0000
12.06.2015 16.06.2015 Y3 HU0000402979 A180622C15 1 102 2.15 - 0.02 2.25 2.05 101.0176 1.0479
12.06.2015 16.06.2015 Y5 HU0000402953 A200624B14 1 835 3.01 - 0.05 3.11 2.91 102.2695 2.5411
12.06.2015 16.06.2015 Y10 HU0000402748 A250624B14 3 661 3.95 - 0.01 4.05 3.85 112.6426 5.3795
12.06.2015 16.06.2015 Y15 HU0000402532 A281022A11 4 877 4.01 - 0.02 4.11 3.91 127.8940 4.3829
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M3 M6 M12 Y3 Y5 Y10 Y15
Line Chart: Yield (%)
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X-Y Chart:Yield (%)

13. Set up a database with all matured, issued
and planned instruments and transactions
• Click on a government security ID shows its cash
flow table

14. 10Y fixed coupon bond, 6.75% annual
coupon, face value HUF10000, odd first
coupon date

15. Database
• contains all instruments ever issued by GDMA
• including securities, loans, swaps, local currency
and FX denominated
• one Excel workbook for each instrument, including
transactions
• operated through an Excel-Access framework
• Used for planning, reporting, input for Monte Carlo
simulation to establish benchmarks

16. AKK is exclusively responsible for managing Central
Government’s debt.
Public debt and external debt data compiled by the
central bank’ – National Bank of Hungary’s Statistical
Department – not a DMO.
Thank you for your attention.
Werner Riecke