The Belgian state only issues five- and eight-year government bonds in December. The press release came from the Federal Debt Agency, but the decision was at least partly settled by political games.
The Belgian saver who hoped for a second chance with a one-year government bond will be disappointed. Except perhaps for CD&V, no political party granted the Minister of Finance, Vincent Van Peteghem (CD&V), an extra round as the patron saint of Belgian savers, so close to the elections.
Read more below the video
1. Are government bonds worth five or eight years interesting?
No. When it comes to bonds, the world has turned upside down. Six-month or one-year bonds yield more than longer maturities. Moreover, a reduced withholding tax rate has only been promised for government bonds with a term of one year. If the coupon of the government bonds were fixed today, the government bonds would probably yield approximately 2 percent net over five and eight years. There are even savings accounts that do better:
Anyone who buys a Belgian government bond on the secondary market, which matures in October 2024, enjoys a gross yield of 3.52 percent, according to the prices on the website of the Debt Agency. Savers pay 30 percent withholding tax on the 0.5 percent coupon, but they pay no tax on the difference between the current purchase price (97.31%) and the amount (100%) they get back at maturity. Anyone who wanted a one-year government bond could still try to buy a linear government bond (OLO) with a one-year term on the secondary market through their broker.
2. Will there ever be a government bond in one year again?
Never say never, but we think the chances are rather small. The instrument was created in September to compete with savings accounts. In any case, the tax-advantaged rate of 15 percent withholding tax was only provided for two issuance periods: September and December. A repeat of the great success of the one-year government bond in September could cause problems for some Belgian banks.
On November 10, the Belgian Competition Authority (BMA) formulated advice to allow more competition without endangering the stability of the banking sector. The abolition of the fidelity premium for savings accounts is one of the proposed measures. Savers are only entitled to this premium after twelve months. It’s a different track make it possible to transfer IBAN account numbers from one bank to another. If consumers can keep their account number, just as they can keep their mobile phone number when switching providers, they may be more inclined to switch banks. Also a principle prohibition on the linked sale of products or serviceswhich binds consumers to a bank when taking out a home loan, for example, can promote the mobility of savers.
Not only is there a lack of competition between banks, but it is also difficult for other savings and investment products to compete with the savings account. That is why the BMA states an extension of the tax exemption for, which now only applies to the interest on a savings account with a maximum of 980 euros. If savers can throw the income from other products into that basket with tax benefits, they may also look more often at alternatives.
2023-11-18 11:16:30
#anticlimax #government #bond
