The Debt Agency itself did not come up with the idea of a one-year government bond, but is sympathetic to the idea. Because if billions are collected with government bonds, the Belgian government will have to cough up less interest on other debts. Countries such as Portugal and Italy already showed Belgium this trick earlier this year.
From January to June, Portugal had already collected more than 10.2 billion euros from private individuals with savings certificates, pretty much the equivalent of Belgian government bonds for Portuguese people, according to the Reuters news agency. That amount is twice as high as the 4.6 billion euros that the Portuguese savings certificates throughout 2022 and the 500 million euros throughout 2021. The explanation for the success of the Portuguese government bonds is not far to seek. As in Belgium and most other countries in Europe, Portuguese banks are delaying raising interest rates on savings accounts.
Italy sold 18.2 billion euros worth of government bonds to private individuals in June. In Spain, there is no longer a debt instrument tailored to individuals, but the classic Treasury certificates have gained enormous popularity among the general public. Ordinary Spaniards own no less than 15 percent of all Spanish treasury certificates, while that percentage used to be negligibly small. State bonds were also undergoing a revival in Belgium. The government is dusting off the somewhat old-fashioned savings product by attaching a temporary tax benefit and by extending the term to one year.
More than 1 billion or billions?
The one-year government bonds are a first for the Belgian Debt Agency. Government bonds with longer maturities of three, five, eight or ten years have been around for decades. Debt instruments with short maturities such as treasury certificates of Euro Commercial Paper (ECP) for large investors, the Belgian treasury has also had it in its range for much longer. Due to the unexpected issuance of these government bonds, the ‘normal’ calendar of debt issuance has been thrown upside down.
The experts expect that the proceeds of this government bond will exceed the billion. Government bonds have never yielded more than the 5.7 billion euros of the Letermebons in December 2011. This time there is no call from the prime minister to save the fatherland like in 2011, but there is a tax break, just like 12 years ago. Incidentally, in 2011 it was only during the subscription period that it was decided to grant an exception to the normal tax for the state certificate. This time the advantage has been announced long in advance.
Good for the saver and the treasury?
According to Jean Deboutte, director of the federal Debt Agency, the managers of Belgian public debt can shift billions relatively easily. To put things in perspective, the agency must raise more than 50 billion euros from investors this year and next year to finance the government deficit and refinance maturing debt.
For example, the treasury may raise less money than planned with treasury bills. The agency can always invest temporary cash surpluses, with a capital guarantee. According to Deboutte, a successful issue of government bonds can ensure that our country can refinance its debts more cheaply. “Only the announcement of the one-year government bonds has ensured that the interest rate differential with France has narrowed somewhat. I am also convinced that Portugal would have to pay more interest if private Portuguese savers did not pay so much savings certificates had bought.”
Despite repeated political bickering in the Wetstraat and the lack of action to reduce the budget deficit, Belgium is not yet on the speculators’ radar. The credit rating agency Fitch confirmed Belgium’s AA- rating in March, but has set the outlook to negative. This means that there are still a few elements that Fitch keeps an eye on Belgium and that, in the absence of improvement, may lead to a lowering of the rating. The very highest rating for issuers of long-term debt is AAA. For example, Portugal has BBB+ at Fitch.
Safer than a savings account?
In the short term, the Belgian government bond is as safe as can be. “Belgium has the highest possible rating for short-term debt instruments,” says Deboutte. That’s an F1+ rating at Fitch. Portugal has an F rating for short-term debt, yet the one- and two-year Portuguese interest rates are lower than the Belgian ones. Savings accounts are subject to a deposit guarantee of up to EUR 100,000 per bank and per saver in the event of bankruptcy. With government bonds, the state guarantee is infinite. A country can also go bankrupt, stop paying interest or even repay debts, but that has historically happened much less often than a bank going under.
The Debt Agency raised 1.981 billion euros on Tuesday with treasury certificates of two different maturities. For the certificates maturing on November 9, 2023, international investors asked an interest of 3.567 percent. For the certificates with an expiration date of July 11, 2024, they asked 3.568 percent. The coupon for the government bonds will not be set until August 22. If Belgian government interest rates do not suddenly start falling sharply in the coming weeks, the interest on one-year government bonds will normally be higher than current savings rates.
On Tuesday evening, Jean Deboutte, director of the federal Debt Agency, will be a guest in the Kanaal Z studio to explain the one-year government bond.
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2023-08-09 15:44:49
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