Macro Watch – Europe & Central Asia: The last months of 2011 were a turning point for the Icelandic Housing Financing Fund (HHF). The HFF is a government-owned company focused on granting mortgage loans to households, municipalities, and enterprises. It was one of the worst hit by the real estate market collapse in the country in 2008, when many Icelandic households faced difficulties in performing their mortgage loans. In March 2011 the Icelandic government had no option but to bail out the HFF by granting ISK 33 billion in state aid.
Housing Financing Fund Bond Yield
Chart provided by: CEIC
Following the government’s involvement in the fund’s operations and restored confidence in the Icelandic financial system — in February, three years after the collapse, Fitch Ratings upgraded the credit rating of the country — HFF bonds have become one of the most secure investments in the country. Rising real estate prices also contributed to the recovery of trust in the HFF.
The yields on HFF bonds continued to fall during the first quarter of 2012, reflecting declining risk. During the third week of February, the yields on HFF bonds with maturity 2024, 2034, and 2044 dropped to 0.867%, 1.952%, and 2.402%, respectively, which were the lowest levels since the HFF was founded. The bond yields with maturity 2014 continue to hold their negative levels, making them one of the lowest-risk financial instruments.
By Alexander Ivanov in Bulgaria – CEIC Analyst