EXCLUSIVE: Belgian Debt Head: Expect Funding Plan Magnitude in Coming Years to Be Like 2021
12 October, 2021
By David Barwick – FRANKFURT (Econostream) – Belgium’s government funding plans in the years ahead will probably be of a magnitude like that of the current year, according to Maric Post, Director Treasury and Capital Markets at the Belgian Debt Agency (BDA).
In an interview with Econostream last week, Post said that the BDA was pleased at having extended the average maturity of its debt portfolio to more than ten years and was not seeking to go yet further.
Similarly, he said, the BDA did not envision extending its own curve beyond the current limit of 50 years.
While work on the 2022 funding plan is continuing, the assumptions made by Belgium’s Monitoring Committee for the Budget, together with upcoming redemptions, offer an idea of the budget deficits expected in the years to come, he observed.
On this basis, he said, ‘we can expect a funding plan for the coming years on the same order of magnitude as this year.’
After working very hard in recent years to lengthen the average maturity of its debt portfolio, an effort that resulted in an average maturity of almost ten years, Belgium initially saw no need to go yet further, Post said.
However, earlier this year the BDA decided to extend its average maturity a bit more, and is now looking at 10.3 years, he said. However, he said, ‘We’re very aware of the fact that it gets very difficult to keep pushing it even further out.’
‘So the most likely scenario is that we will hover around this kind of level for a while, and we’re happy with that’, he said. ‘We’re not pushing to extend it out any further.’
Although the BDA in 2016 issued a 100-year private placement, this deal would presumably not be replicated in the public markets, Post said.
‘We’ve debated that internally and the outcome up to now has always been that we want to stick to a liquid curve up to 50 years’, he said, as anything beyond that ‘would be very much a niche market’.
Fifty years is ‘the point to which we feel we can ask our market makers to provide a liquid market to the investors’, he added. ‘So, for us, that’s the final point of our curve.’
Front-loading Belgian debt issuance in the sense of doing a large majority of the year’s funding in the first half of the year is not just a way of addressing pandemic-related uncertainty, but rather ‘a little bit like with our 10-year issuance early every year: it’s a bit of a tradition and it’s something that suits us well for now’, Post said.
With the BDA having been instructed to consider the possibility of a new green bond, the BDA is occupied with the question of how much in green expenditures is available for the purpose, he said.
‘Many of the policies that can address the environmental objectives are situated at the regional level, which leaves us with available green expenditures at the federal level that are fairly limited’, he explained. ‘It allowed us for annual issuance on the order of €2 billion, which is fine when you’re tapping an existing bond. What we’re looking at currently is the availability of green expenditures that we have if we are to launch a new green OLO, and that will require some further work.’
Asked about likely volume, Post replied that ‘what we expect is that the range of available green expenditures at federal level will probably remain on the same order of magnitude.’ As for the timeline, whether next year is possible will depend on the outcome of preparatory work on the expenditure side, he said.
Turning to the European Central Bank, Post acknowledged that a withdrawal of its policy support would inevitably have some impact, but suggested that markets could handle it.
‘If currently two thirds of gross issuance end up in the pockets of the ECB, there will be a very big adjustment by the markets to a situation where that diminishes’, he said. ‘Can that be managed? I think so. I think the central banks are doing a great job of preparing the markets for their next moves.’
In other comments, Post indicated that dollar-denominated issuance under the current circumstances faced obstacles, given the need to consider the cost after swap.
‘And for the last two years, it’s been very difficult to beat the funding cost of the OLO curve with European government bonds being so expensive that it’s getting very hard to issue in another currency and beat that funding cost’, he said. ‘But our dealers are always on the lookout for opportunities there, and if and when they arise, we can act quickly and we’re happy to issue in, for example, the dollar market.’
As for buybacks, in 2020 the BDA had started buying back bonds maturing in 2022 rather than, as had been usual practice, only such bonds maturing within the next 12 months, he noted.
‘We stopped that because of the crisis, but this year as well, we started buying back the 2022 bonds already at the beginning of the year, so that we were already buying back bonds up to 18 months out rather than 12 months’, he said.