In the history of securities market 1990 was a very important year. The first law on securities was approved and the Budapest Stock Exchange (BSE) was reopened. The Hungarian bond market is in effect a government securities market, because both the volume of issues as well as the majority of transactions are related to the government itself.
Government bonds
According to the 1993 plan, central budget deficit financing was based on issues of government securities. At the beginning of 1993 government bonds were issued at a very low yield. Interest rates had decreased by 15% in 1992 and by the middle of the year it had become clear that the macroeconomic situation had diverged from forecast and the balance of payments current account had deteriorated substantially. Due to uncertain economic prospects, inflation and higher interest rate expectations, government securities issues were again dominated by short-term discounted T-bill auctions.
In 1994, in order to increase the demand for longer-term bonds, the government introduced a tax allowance system for individuals who bought government papers with maturities over three years. The tax allowance made banks' savings schemes less competitive, so savings shifted away from the banking sector.