NETHERLANDS - The Dutch Treasury is planning to re-examine the potential of index-linked bonds in order to find out whether experiences elsewhere reveal potential financial benefits to the Netherlands.
A recent study reaffirmed the government's earlier conclusion that indexed loans are not advantageous to the government's finances, but the Treasury has vowed it will not exclude anything which might contribute to a more stable budget under the recently-introduced budgeting rules.
The initial research conducted was based on situations abroad, said the Treasury in a statement.
"Dutch investors might be willing to pay a higher premium for bonds linked to the Dutch consumer index, because of the amount of Dutch pension assets as well as the important role of defined benefit systems'.
"In addition, the need to minimise risk might increase with the ageing of pension funds' participants," continued the finance ministry.
The Treasury also wants to know more about the impact of index-linked bonds on financial innovations in the Dutch market and their value to society, it indicated, so in order to gain clarity, the finance department is to start discussions with institutional investors and scientists through a conference in cooperation with Netspar, the platform on pensions, ageing and retirement.
"Dutch government index-linked bonds could be a welcome addition to the already-available ILBs from other countries," said Thijs Steger, spokesman for APG, the asset manager of the €205bn civil service scheme ABP, adding that it would help to diversify APG's portfolio.
"However, the ultimate decision to invest will depend on the returns and the usually high price of ILBs," said Steger, noting APG has a strategic allocation of 7% to index-linked bonds.
According to APG's spokesman, there are no ILBs available which fully match ABP's liabilities, nor are there any ILBs linked to the Dutch wages index at present.
A spokesman for the healthcare scheme PFZW said the pension fund is also interested in Dutch ILBs though stressed not at any price.
PFZW has 12.7% of its assets allocated to ILBs.
The Dutch Treasury decided in 2005 it would not issue index-linked bonds because it could not see any cost-saving effect or any evidence of it producing a more stable budget.
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