The decision by ratings agency Standards & Poor’s (S&P) to downgrade the creditworthiness of the Netherlands from AAA to AA+ will affect the assets and liabilities of Dutch pension funds only marginally, industry experts have suggested.
Many point out that pension funds have invested a relatively small portion of their assets in local government bonds.
The investments of ABP, the €293bn civil service scheme, in government paper was 15.1% at the end of the third quarter, according to Harmen Geers, spokesman at asset manager APG.
Geers declined to provide details on ABP’s investments on a regional basis, but he said the pension fund had invested a much larger proportion of its fixed income holdings in Germany and France.
Rogier Krens, director of asset management at Syntrus Achmea, estimated that approximately one-third of Dutch pension funds’ assets were invested in government bonds.
“Although the exposure to Dutch government bonds is in many portfolios the largest individual one, it probably won’t exceed 5% of total assets,” he said. “Changes in Dutch government bond yields will have a limited affect on the value of pension funds’ assets.”
Geers also pointed out that, to date, only S&P had decided to downgrade Dutch ratings – the Netherlands has maintained its AAA rating with other major ratings agencies, including Moody’s and Fitch.
According to Krens, the changes in the 10-year rate following S&P’s announcement varied little from the “usual fluctuations”.
He added that the spread with German government bonds remained at approximately 30 basis points.
“The downgrading of France had a similar effect, with the spread between German and French bond yields varying no more than a couple of basis points,” he said.
Neither is Krens expecting the downgrade to have much of a long-term impact.
“The alternatives for government bonds are becoming scarcer,” he said. “And the downgrading doesn’t change the attractiveness of Dutch government paper.”
Further, Krens believes the downgrading will affect pensions funds’ liabilities only marginally, as the discount rate is unlikely to change as a result of S&P’s decision.
Dennis van Ek, actuary and principal at pensions adviser Mercer, also noted that markets had shown a “limited” response to the downgrading.
“The interest rate on 30-year Dutch government bonds seems to have risen by 1 or 2 basis points since Thursday, while the corresponding German rate has decrease by an equal percentage,” he said, adding that the 30-year swap rate had hardly changed.
However, he stressed that the less solid fundamentals of Dutch government finances, such as the relatively large budget deficit, large amounts of mortgage debt and high property prices, remained.
S&P justified its downgrading of the Netherlands by citing weakened growth prospects, and the fact the country’s real GDP-per-capita growth was lower than that of its peers.
However, it said it believed the political consensus, which favours containing public debt and deficits, would be maintained.
It said its stable outlook for the long term reflected its view of limited additional downside risk to the Netherlands’ creditworthiness.
On national television, Jeroen Dijsselbloem, the Dutch Treasurer, said: “The Netherlands is to remain one of the most creditworthy countries in the world.”