The Netherlands, whose bonds trailed their AAA peers in Europe this year, is planning to drum up buyers for its debt by advertising itself as a haven.
“We plan to visit large investors in Asia next year,” Niek Nahuis, head of the Dutch State Treasury Agency since Oct. 1, said in an interview in The Hague yesterday. “We want to show that we’re a good alternative to Germany and other core euro countries, and that the Netherlands can easily be part of the investment portfolio.”
Demand for Dutch bonds waned this year as the country, the fifth-biggest economy in the euro area, grappled with a recession and the government’s austerity measures designed to bring down the budget deficit. Prime Minister Mark Rutte said on Sept. 26 that the Netherlands risks a fine of as much as 1.2 billion euros ($1.62 billion) from the European Commission if it doesn’t cut the 2014 budget by 6 billion euros.
Investors from Asia bought 38 percent of 7 billion euros of five-year notes sold by the European Stability Mechanism yesterday, said a person familiar with the matter who asked not to be identified because they’re not authorized to speak about it. The ESM is the euro area’s 500 billion-euro firewall designed to stabilize the financial system.
Investors charged the Dutch an average 2.41 percent to borrow for a decade at a Sept. 10 auction, 0.62 percentage point more than the average yield at a German bund sale on Oct. 2.
“Consumer demand is still muted and that is a clear challenge to ensure the economic situation is improving and confidence is returning,” said Michiel de Bruin, who oversees about $34 billion of euro-area government bonds at F&C Netherlands. “That is a slow process.”
Dutch government bonds have lost 2.2 percent this year, underperforming German and Finnish securities, which also have AAA ratings and have declined 1.7 percent and 1.8 percent, according to Bloomberg World Bond Indexes. The Netherlands has also lagged behind its French peers, rated one step lower by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
The Netherlands sold 10-year debt at an average yield of 2.06 percent in July. That increased to an average 2.41 percent at the following auction in September, while the German rate fell to 1.79 percent.
“The spread has been reasonably stable lately,” said Nahuis, 42, who joined the Dutch debt office in 2005. “Investors will look at a subset of comparable countries that perform well. The Netherlands is part of that group, with Finland, Austria and Germany. That’s what you want to be part of and be compared with.”
Dutch 10-year bonds yield 38 basis points more than German securities with a similar due date, up from 13 basis points on Jan. 23. They yield 15 basis points more than Finnish paper, having yielded less in February.
The Netherlands is in its third recession since the global financial crisis started in 2008 and has been in breach of the European Union’s deficit limit of 3 percent of gross domestic product since then. The budget shortfall will widen to 3.3 percent of GDP in 2014 from an expected 3.2 percent this year even, after the government introduced the additional austerity package of 6 billion euros, its planning agency said Sept. 15.
The government on Sept. 25 defeated a no-confidence motion in parliament introduced by Geert Wilders’s Freedom Party and backed by the Socialist Party and the Party for Animals.
The Green Left party yesterday left discussions over a new package of cuts, highlighting risks faced by the coalition, which polls have shown to be losing support.
For de Bruin at F&C Netherlands, the country’s bonds are still attractive because of its “history of solid government finances” and there is a commitment from both the governing and opposition parties to maintain that. They are also attractive because of the yield premium over German bunds.
“Should this situation indeed develop in a reasonably favorable way, we believe the spread could compress going forward,” de Bruin said in a telephone interview yesterday. “Our own positioning reflects that stance.”