One of the medium-sized Eurozone bond markets, the Dutch bond market has long been in the shadow of its much bigger German and French neighbours. However, it has an advantage over many of the other smaller bond markets in its streamlined and transparent working. Back in the late 1980s, the Dutch Central Bank – well before many of the other European bond markets both big and small – embarked upon a fairly radical overhaul of its bonds with a clear idea of what it wanted to create. The sinking fund bonds, never a favourite of impatient investors, were phased out and ‘funged’ into much more popular and thus more liquid bullet structure debt and the auction process was made more open and transparent. As a result, the Dutch bond market has long been considered a very easy place to invest with a decent yield curve too. That Holland has had a ‘full length’ yield curve was thanks in large part to the asset management community, including some of the large corporate Dutch pension funds, demanding longer dated securities. This was in contrast to the situation in say, Germany or Italy where only now are the funds turning to 30-year debt.
Alex Van der Speld, portfolio manager with Insinger, adds: “Even after EMU we still think Holland has a very interesting bond market and, importantly, a decent yield curve. Yes, it is hurting on the supply side. The big pension funds are still heavy investors in Government bonds where liquidity is still reasonable. In the long run, investor focus will need to switch to quasi-Governments and AAA-rated credits purely for liquidity reasons. There are already big corporates standing up to take the place of the Governments, look at Ford and the $15bn 30-year issue.”
Robeco’s Bob Galesloot agrees that EMU and the single currency has not improved the situation in the smaller bond markets. “Liquidity in the smallest EMU members’ domestic government bond markets was never good, and it certainly has not improved since the introduction of the euro. Robeco’s Dutch government holdings are considered to be core holdings and not part of our shorter term trading strategies. Our largest holdings are in France, Germany and the Netherlands.” Galesloot adds that the onset of EMU has coincided with a broadening of focus for Robeco, in common with other groups. “Back in 1998, Robeco Group re-allocated its resources within the investment team to reflect the focus on global credits. We believe that the radical change in credit supply conditions in the EMU market has created an opportunity to pursue an active credit policy.”
ABN AMRO’s Alan Higgins says that before EMU, most of the smaller markets were truly domestic. “With the advent of the euro, things changed. Competition between the investment houses, such as Deutsche Bank and Paribas and the big US houses has put the wind up a lot of the little financial markets. However, within the Netherlands, we already had an exceptionally large and healthy asset management industry. As a result, the Dutch financial services groups, and the bond market itself were already geared up to sell competitively within their own markets. So from that perspective, the Dutch bond market which was already supplying a sophisticated demand, has had less of a shock to its system than many of its (smaller) peers within the Euro-zone.”