Sections

Netherlands re-opens long bond issue

NETHERLANDS - The Dutch State Treasury Agency (DSTA) will on May 8 re-open its 2005 30-year bond by tap auction.

Even though European institutional investors have avoided long bonds so far this year, the agency will re-open the January 2037 issue with a 4% coupon and a current outstanding volume of €9.3bn.

The agency has set out to raise a target amount of between €1.5bn and €2.5bn.

"The repo-facility allows primary dealers to obtain from the DSTA new DSLs [Dutch Government Bonds] that have not yet reached outstanding volume of €10bn," said the DSTA in a press release today.

There are 13 such primary dealers, among them ING, Fortis, ABN Amro, Barclays Capital and Credit Suisse First Boston, which have the exclusive right to take up new tap issues. "These banks sign a one-year contract to distribute and promote DSLs," according to the DSTA.

Michael van der Elst, head of government trading at Fortis in Brussels, told IPE today that institutional investors currently have a reluctant attitude towards such long bonds.

"Interest rates are relatively low at the moment, and there is also a very flat interest rate curve, so the difference between a duration of say 30 years or two years has become very small. We are talking about 15 basis points or so," said Van der Elst.

In January, traders were quoted in the German press as saying that the auction of German 30-year bonds was "disastrous". Only €5.885bn was offered for the €6bn bond issue and only €4.9bn was allocated during an auction in early January.

"This can change rapidly," Van der Elst added, arguing that institutional investors prefer to adopt a "wait and see" attitude in very volatile markets.

Van der Elst says he has also observed a trend in which asset managers are selling the long end of the long bonds against shorter ones due to duration management.

He added: "I think that their expectations are indeed that in Europe the interest rates will go up a bit and then it is safer to keep the portfolio a bit shorter."

Nonetheless, January's reopening of the 30 year DSL 15 January 2037, with an average price of €97.78, raised €1.45bn.

In June a new 10-year bond will also be launched by means of a Dutch direct auction, the DSTA also said.

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