Financial analysts have become increasingly sceptical that demand for soon-to-be-unveiled Belgian government bonds will match the extraordinary enthusiasm shown for special one-year bonds earlier this year.
The official yields for two new state bonds, of five and eight-year maturity, are set to be revealed on Tuesday. On Monday afternoon, market rates for the two types of bonds were hovering around 2.8% and 3.0% respectively.
According to L'Echo, the Belgian Treasury will likely offer rates 30 basis points (or 0.3 percentage points) below the market rates to cover commissions charged by banks for selling the bonds to customers.
In addition, bondholders can expect to pay a 30% withholding tax rate on their earnings. This means that the bonds' effective yields – or the rate that bondholders can actually expect to earn – will likely be just 1.75% and 1.89% for the five and eight-year bonds, respectively.
Such yields will fall significantly below those provided in summer by the so-called 'Van Peteghem bonds', named after Finance Minister Vincent Van Peteghem, which offered an effective rate of 2.81%. Their high yield largely resulted from a reduction of the usual withholding tax rate from 30% to 15%.
Finance Minister Vincent Van Peteghem. Credit: Belga / Eric Lalmand
In total, more than 600,000 Belgians participated in the Van Peteghem bond sale, raising a colossal €21.9 billion for the Belgian State.
By design, the bonds offered an attractive alternative to the savings rates offered by Belgian banks. Indeed, Van Peteghem himself previously noted that the bonds' main purpose was to "boost competition and encourage banks to raise interest rates."
Indeed, despite their lower profitability, the new bonds' yields will still be well above the savings rates currently offered by Belgium's commercial financial institutions.
A recent study by the IESEG School of Management found that, in September, the average savings rate in Belgium was just 0.55%: far below the European Central Bank's (ECB) 4% benchmark deposit facility rate, and beneath the average rate in Germany (0.59%), the Netherlands (1.32%), France (2.41%) and Luxembourg (3.33%).
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The study also suggested that banks worried about customers withdrawing their funds to invest in the soon-to-be-released bonds should simply hike their savings rates to appropriate levels.
"Banks would have the opportunity to reduce the flight from savings accounts to the new bonds by increasing the rates on regulated savings deposits," it noted.
