Euro rates watch negative net dutch supply in 2016

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Marketing Communication

Euro Rates Watch

Group Economics Macro & Financial Markets

DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.

16 December 2015

Negative net Dutch supply in 2016 

Gross bond supply will be the lowest since 2008, net supply will even turn negative

Kim Liu

Negative net supply and QE dynamics to support performance versus Bunds

Senior Rates Strategist

The DSTA will lengthen the duration of its debt portfolio from 4.5 to 6.4 years…

Tel: +31 20 343 4669

… by issuing longer-dated debt and by using less interest rate swaps

The 2016 funding need will equal almost EUR 80bn, which is 15% lower than in 2015

But outlook for public finances points to a further decline of the funding need

Focus will be on money market while it continues to act as a buffer

Possible downward revision of money market funding poses risk to liquidity of Tbills

The changes to the funding policy and risk framework could lead to more volatility

Kim.liu@nl.abnamro.com

and cheapening around auctions Dutch State announces significant changes for years ahead in 2016 Outlook Last Friday, the Dutch State Treasury Agency (DSTA) published its 2016 outlook. Compared to previous years, the 2016 outlook introduces significant changes to its funding policy and to the way how the Dutch State will manage its interest risk exposure. In this special publication, we discuss these changes and their implications. The full and official publication by the Dutch State can be found here. New risk framework will lead to higher duration of debt portfolio One of the most important changes affects the new risk framework the DSTA will use for the next 4 years. Under this new framework, the DSTA has decided to lengthen the average maturity of its debt portfolio from 4.5 years to 6.4 years (a range will be used of plus and minus 0.25 years) in 2019. By extending the average maturity, the DSTA will lock in longer funding at low additional borrowing costs and at acceptable risks for the government budget, given historical low yields and a flat sovereign curve. Lesser reliance on interest rate swaps under current framework The new framework is a formal extension of the amendments made to the current framework in the past few years. Under the original framework, which was developed in 2007, the DSTA swapped almost all outstanding debt back to replicate a constant 7 year centralised benchmark bond. Every new issuance would also be swapped back to a constant 7 year maturity. In the last few years, the DSTA deviated from this policy by not

Insights.abnamro.nl/en

Bloomberg: ABNM


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