Hungary's+Bonds+and+Interest+Rate


 * Hungary's Bonds and Interest Rate** — Heather DeWaal, February 22, 2012

Currently, Hungary’s sovereign bonds are the best for investment returns, but that is not an indication of economic prosperity and stability. Hungary’s bonds are at risk due to its critical interest rate, when a country’s debt-servicing costs (the interest they pay on debt annually) are above 10% of its tax revenue and therefore unsustainable. Other countries that currently fall under this critical interest rate are Ireland, Italy, Greece, and Portugal. The possibility of their economies going under causes a lot of panic—economic turmoil and recession—and Hungary is now on watch for precisely that risk. At the moment, its average interest rate is 5.4%. Its critical rate is 6%. While Hungary may appear to be good for future investment returns, if the nation’s interest rises past 6%, they will be unable to pay interest to their investors. A nation unable to pay interest is a poor investment — to provide better incentives for investors, they will have to raise their interest rate even higher. This will put the nation further into debt until they are unable to pay it — the main problem of the European Crisis. Additionally, the United States is also nearing the critical rate, which is 3.43%, as compared to our current 3.2%. However, the U.S. is seen as a better investment than Hungary; reaching that rate won’t necessarily bring the nation into a downfall. On the other hand, Hungary may be in the news more often in the coming months as yet another Greece or Portugal.

Video: media type="custom" key="12595692" Question: Why aren't strong sovereign bonds necessarily an indication of prosperity?

For Further Information: - [|"Hungary Most at Risk When Borrowing Costs Rise"] (Businessweek) - [|Hungary's Interest Rate] - [|YouTube]