Belgium is looking to raise more cash from ordinary citizens, after years of subzero rates in the euro-area brought its retail program to a standstill.
(Bloomberg) — Belgium is looking to raise more cash from ordinary citizens, after years of subzero rates in the euro-area brought its retail program to a standstill.
The European nation plans to lure mom-and-pop investors with a 10-year bond that pays a 3% coupon, or more than one percentage point higher than the rate offered by Belgian banks on deposits of up to 12 months. A three-year note is also on offer with a 2.60% interest rate. The goal is to raise €250 million with sales this year, with the possibility of borrowing more if there’s demand.
“This is our moment to offer something attractive,” said Jean Deboutte, director of strategy at the Belgian debt agency. “We can then adapt it for the next year onwards and hopefully get more in the funding plan — but let’s first see the evidence.”
A larger retail program could potentially pave the way for a green retail bond to be launched in future if demand allowed, Deboutte added.
Belgium is among the European countries hoping higher bond coupons will tempt small-time investors to buy more government securities, thus supporting bond markets as central banks exit. Fitch Ratings estimates that markets will need to increase their holdings of the region’s sovereign bonds by around €650 billion in 2023, a shift from years of European Central Bank purchases outstripping government issuance.
Local savers, for their part, could find the coupons an alluring alternative to new term deposits in Belgian banks. Belgium restarted its retail debt program last year, raising a total €110 million after a three-year hiatus when interest rates and government debt yields were rock-bottom.
EU Banks Make Fat Profits From Deposits While Savers Get Little
Belgian 10-year yields have risen by more than 350 basis points since the beginning of 2021, and the 3% coupon on the retail bond is the highest Belgium has paid for comparable-maturity paper since 2012.
Deboutte said the coupon represented “quite a competitive offer,” noting the government’s offering tracks the repricing in market rates more closely than bank deposit rates. In contrast, new term deposits for up to 12 months in Belgium paid 1.74% as of December, according to the latest data from the European Central Bank.
Retail investors’ cash is also being targeted by Italy, which sees them as a “key element” of its debt management strategy and plans an inflation-linked bond in March aimed specifically at this segment. Investors and dealers have suggested Britain should tap retail investors for financing as it steps up its borrowing program. Meanwhile, Spaniards frustrated with miserly bank deposit rates, are opting for government bonds — online debt purchases by Spanish retail investors in January amounted to about as much as the total sold for the whole of 2022.
Retail investors are unlikely to compete with professional investors as a source of financing — the Belgian retail program plans to raise just 0.6% of the amount set to be raised via sales of government bonds aimed at institutional investors in 2023. But they can play the role of a steadfast anchor. During the euro-area sovereign debt crisis, Belgium raised a record €5.7 billion from retail investors, thus avoiding paying the surging yields demanded by professional investors.
“It shows you the strength of having such a product and such a diversification,” Deboutte said. “It is really a very stable investor force.”
The debt office has started taking orders for the bond and will close the books mid-week.
(Updates with line on ECB holdings in paragraph 5. Clarifies wording on debt sales in paragraph 10.)
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