Belgium Clearing Legal Issues to Pave Way for Inflation Bonds

Belgium is in the process of resolving tax issues for its first sale of inflation-protected bonds, according to a director at the debt agency.

The government will need to clear “legal hurdles” on tax computation for local individual investors before the securities can be issued, said Anne Leclercq, director for treasury and capital markets in Brussels. This won’t affect institutions who aren’t liable for Belgian withholding tax, she said, adding it’s not yet clear when any sale would go ahead.

“We’re serious about introducing the new product but before we do we need to make sure that all legal elements are well covered,” Leclercq said in a telephone interview. “We would like to be able to offer it once the issues are cleared, provided the market conditions are favorable. It’s difficult to give you an idea of when this will be resolved because it’s not our direct responsibility.”

Belgium plans to sell 40.5 billion euros ($54.1 billion) of debt this year, compared with 48 billion euros in 2012. A total of 37 billion euros will be sold under its conventional bond program and 3 billion euros under its so-called Euro Medium-Term Note program. The remaining 500 million euros will be in retail bonds, Leclercq said.

The inflation-protected bonds will also be issued as Euro Medium-Term Notes, Leclercq said. The EMTN program was started in 2008 and gives the debt agency flexibility for raising cash when funding costs are cheaper than for regular bonds. The agency has previously sold foreign-currency and floating-rate securities under this program.

First Sale

Belgium has sold 4 billion pounds of regular bonds and 200 million euros of EMTNs this year, Leclercq said. The central government hasn’t yet offered inflation-linked securities.

Belgian government bonds returned 17 percent last year, according to indexes compiled by Bank of America Merrill Lynch. German bunds gained 4.5 percent and French securities rose 10 percent, the indexes show.

Germany, France, and Italy are among euro-area nations to conduct regular sales of inflation-protected bonds. The securities allow retirement savings to keep pace with any increase in consumer prices as the principal and coupon payments are linked to an inflation index.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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