2023-08-31 06:00:00
1. Government bonds, accessible?
Can an individual buy Belgian government bonds? According to Xavier Servais (investment consulting company Delande), it is quite possible. “In practice, linear bond issues – the Olos – are intended for institutional investors. But there is a secondary market on Euronext Brussels, where it is possible for individuals to buy existing Olos in denominations of 200 euros. Obviously, the issuance of the one-year State note bypasses this alternative somewhat since it is accompanied by a reduced withholding tax of 15% instead of 30%. But note that following the rise in interest rates, some Olos issued when rates were close to zero are traded below the issue price. This means that when the capital is repaid, part of the profit is linked to the capital gain which is not subject to withholding tax”.
2. Buy foreign government debt?
For Alexandre Goldwasser of the Goldwasser brokerage firm, there is an obvious demand from customers for a return on their savings. “It’s the only way to partly counter the effects of inflation on the value of their savings. And we, as specialists in the bond market, we see a very strong demand from individuals, following years of lean times linked to the zero rate policy in the eurozone”. Are there currently bond issues capable of competing in net yield with the issue of the Belgian State bond?
“Yes of course. There is in particular this German state broadcast accessible on the secondary market that we offer to our customers. A large issue of 22 billion euros, very liquid, which has the effect of reducing the gap (spread) between the buying and selling prices. It is therefore very easy to resell such a bond. But in this case, the slightly higher net return is very attractive. Exceeding the 3% bar has a symbolic value which makes our customers rush to this offer accessible in denominations of 2,000 euros. Finally, the level of the net yield is also linked to the fact that it is a zero coupon bond. It expires on October 18, 2024, i.e. in just over 13 months”.
Alexandre Goldwasser further specifies that the quality of the debtor is superior to that of the Belgian State. But it is obvious that the success of the State note reassured the markets vis-à-vis the Belgian debt. For Xavier Servais, “operators must clearly note that if the country’s borrowing capacity from institutions were to be reduced, the Treasury would still have the possibility of turning to citizens, as we have seen for Japan, of which a much of the public debt is held by individuals”.
3. Corporate debt?
As long as looking for low-risk opportunities, why not look at corporate debt? The tightening of credit conditions under the influence of the restrictive policy of the major central banks has in fact revived the bond market for private companies. Alexandre Goldwasser thus pinpointed the issue of the German group E.ON of a bond in euro with zero coupon maturing on August 28 of next year. It is traded at 96.3% of its redemption value, which allows it to offer a gross return of 3.944% and an equivalent net return, since the capital gain is not subject to withholding tax. The minimum denominations are 1,000 euros and the energy group’s debt rating is “BBB”, that is to say, the bottom of the very good quality level known as “investment grade”.
It is also a very liquid product, provided that the investor decides to resell to meet occasional cash needs. And for investors scared of the “triple B”, there’s also this issue from Swiss food giant Nestlé. This is a zero-coupon bond in current euros over a period of 2 years and 9 months which is trading at around 90.99% and which offers, on the day of redemption, a net annual yield of 3.44% . As we can see, if the State bond has awakened Belgian savers, credible alternatives are not lacking.
More than 16 billion euros have already been raised
It is a hit… this one-year State bond, which will be issued on September 4. It has already raised more than 16.1 billion euros, the Federal Debt Agency announced on Wednesday. In total, 8,712,524,100 euros were subscribed via participating banking institutions. In addition, at present 215,534 registrations have already been made via the ledgers for an amount of 7,418,128,000.00 euros. The government bond has a duration of one year and a rate of 2.81%. A government note is normally issued quarterly and a new one will therefore be issued in December. However, its duration remains to be determined. With this state bond, the federal government hopes to stimulate competition, encourage banks to raise their interest rates but also send a positive signal to the financial markets.
Subscriptions are still possible with the Agency until August 31 and with banks until September 1. The final result will be announced on September 4. According to Belgian debt market specialists, the government hit hard, which explains the success of this issue. The signal was also received by the operators. As we can see, the Belgian Treasury can now integrate appeals to the public into its strategy. Indeed, the money lent by the public for this operation represents only a fraction of the unproductive savings (currently) of Belgian households. Experts note that savings accounts still hold potential, as do current accounts.
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