New bond offer for Polish families

Polish State Treasury will issue two new types of government bonds. The new offer was prepared for the beneficiaries of the 500+ child benefit programme. The Family Treasury Bonds will be available from October. The nominal price of one bond will be 100 PLN, just like the one of regular treasury bonds.

The new financial instruments will be very similar to the already existing government bonds. However, they will only be available to those receiving 500 PLN from the state for every second and further child. The Ministry of Finance hopes the bonds will be an attractive form of investing the extra income that Polish families obtain from the state.

In Poland, parents with two or more children receive monthly aid in the amount of 500 PLN per offspring, regardless of their income. The amount is equivalent to one fourth of the minimum wage that is to be introduced in January 2017. The government thinks some Poles will want to save and invest the funds rather than spend them on everyday needs.

The bonds will be index-linked, which means the investor’s return will always be higher than inflation (and remain in the positive territory even in times of deflation, i.e. negative inflation).

The instrument is designed for long-term investment. The maturity period of the new types of bonds are 6 and 12 years. The regular offer, available to everyone, comprises of 2-, 3-, 4-, and 10-year bonds.

The interest rate of the 6-year Family Treasury Bonds is 2.6% in the first year and 1.75% in later periods. For the 12-year bonds, the interest is 3.00% in the first year and 2.00% in later periods.

Buying bonds is simply lending one’s money to the state. After the debt security matures, the investor gets back the nominal price they paid plus the coupon, which is their income.

Government bonds are regarded as the most secure and reliable method of investing. However, this instrument is not very popular among the general public. The reason is the low return on the investment. What also puts people away from the financial instrument is the long maturity period.

The 500+ programme, even though it allowed the ruling party to win many supporters, is a big strain to the budget. The government introduced two new taxes: the bank tax and the revenue tax, that are to help to seal the budget hole. However, the former does not bring as much state revenue as expected, and the latter has been recently suspended under allegation that it is not compliant with EU regulations.