Euro Rates Watch – Bright Dutch public finances and bond scarcity

by: Han de Jong , Nico Klene , Kim Liu

  • Negotiations to form a coalition government have been complicated due to the fragmented political landscape and fundamental differences in political manifestos
  • However, talks between the three core parties and Christian democrats seem to be slowly going in the right way
  • Meanwhile, the Dutch economy continues to grow above its potential
  • Public finances are likely to improve by more than official forecasts in 2018 due to cash inflows from robust economic growth, further sales of state owned companies and a possible delay in government formation
  • Due to the favourable outlook, the Dutch Treasury has already lowered its 2017 borrowing requirement, while further downward adjustments are likely
  • We judge that the 2018 Dutch borrowing requirement will be limited…
  • … which would curb long dated bond supply and could lead to funding policy changes
  • Our calculations show that the Dutch sovereign bond market is expected to shrink in 2018 by the largest amount since our data began in 2000…
  • …which will help to offset potential spread widening caused by the taper of the ECB’s QE programme
Euro-Rates-Watch-Bright-Dutch-finances-and-bond-scarcity-Final-1.pdf (288 KB)