MNI INTERVIEW: Belgian Yields Rise As Market Awaits ECB Hike

Any additional issuance on top of Belgium’s existing finance plan this year would be likely to come in the shape of more T-bills and larger auctions across maturities, but for the moment this does not look to be necessary, Belgian Debt Agency Director Jean Deboutte told MNI.

Yields "are a bit higher than what we expected, but this strong increase of 50 basis points came after a decline in yields in February, which was very positive in net terms, the rates are for the moment, not spectacularly high," Deboutte said in an interview.

"They are a bit higher than what we forecast, but it doesn't really lead to a revision of the debt servicing costs, not for the moment," he said.

If rates on the long end increase dramatically then "we might, of course, have more sympathy for issuing five- to 10-year bonds than longer-dated bonds."

"That is a possibility," he said, though for now the agency is "[sticking] to the internal plan."

The agency had planned its average maturity would be around 13 years. It is currently above that, although that is because of a large syndication of 30-year bonds.

ADDITIONAL ISSUANCE

If additional issuance is required, then it would be easiest to issue "one or two billion euros" in additional T-Bills, Deboutte said.

Still, "I really don't expect a lot … more … issuance this year," he said.

"We try to be predictable in terms of funding. So we can withstand a little bit more volatility on the on the short-term debt."

"If it was to really deteriorate, and we will be speaking about huge new funding needs, then we can, of course, increase the size of our auctions and that again, could be over the whole scale of the maturities." 

"Whereas normally, we listen to what the market wants, so we don't try to intervene that much," he said. If rates continue to climb then "we might be a little bit more selecting [in] our own system" of what maturities are issued.

"It doesn't look like it is necessary for the moment, but if it is necessary, we can increase the size of the auctions and also issue four lines, whereas normally we do a maximum of three," he added.

While over 60% of Belgium's debt is held by non-Belgian investors, Deboutte said that "I'm not sure that we can say here, [whether] the extra issuance would be taken up more by foreign investors or by domestic investors. Difficult to say, you can argue both sides."

AUCTION AND SYNDICATIONS

Ordinarily, when Belgium holds a syndication, an auction alongside it is skipped, but in February a small auction was held alongside a syndication.

"I would think that the chances that we do that again ... have reduced," Deboutte said, as "given the current funding needs, we are quite comfortable in terms of funding."

"We never explicitly said that we would absolutely always skip the auction," he said, adding that "we just wanted to prepare and remind everybody that indeed, we might not do this automatically anymore." (see MNI INTERVIEW: Belgium Issuance Flexible As No Budget Passed)

Demand in Monday’s auction was lower than usual, Deboutte acknowledged, "because of the tension that had been building in the weekend."

However, "until now, the demand was very good this year," he said, adding that the Belgian Debt Agency had "even had allocation problems, because some investors claimed they complained that they didn't have enough allocation because there was such strong [demand]."

ECB RATES

"Everybody will be looking at" a potential rate hike by the ECB, Deboutte noted, and the lack of clarity over the timing of any hike means that "the situation, for the moment, is quite volatile."

"The environment is not positive for anyone for the moment," he said.

Investors told the Debt Agency this week that "they did not say that they were stopping in buying, so also for them, I think [it is]business as usual, maybe for the moment."

"We're happy that we did almost 28% of the programme now, and that the most difficult operations are behind us," Deboutte said. "So we are quite comfortable in terms of volumes going forward, and so we can, we can always even skip an auction, if it would be too volatile." (see MNI INTERVIEW: Fiscal Concerns Overstated - Belgian Debt Chief)