Transcript: Interview with Dutch State Treasury Agency’s Saskia van Dun on 12 December 2024

19 December 2024

By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 12 December 2024 with Saskia Van Dun, Agent of the Dutch State Treasury Agency:

Q: Ms van Dun, the DSTA is expecting next year's funding needs to be over €105 billion. Given that almost 50% of this figure is represented by the cash deficit component, do you expect the final figure to oscillate very much from these €105 billion?

A: Well, that is not yet to say. I can't say that because we base the cash on our budget and you've seen that the loan facility for Tennet is included in the amount of €14.2 billion, so that makes it a sizable cash deficit. Based on history, what we see is that during the year, on our quarterly update, we usually revise the funding needs downwards, for example due to underspending. So, in the end the cash deficit is lower than expected. But how much lower? For me it is hard to say, because it really depends on the execution of all the plans and investments of the various ministries.

Q: Can your planned issuance structure change due to the high degree of uncertainty you say you face?

A: No, it can't, but the minister has installed a committee with external experts and we are closely involved there. Together, we are going to look for better projections for the next budget and the budgets to come. And in that sense, I would expect the funding need and the cash deficit to be more in line with each other.

Q: So, it's not like you are going to cancel some of the auctions that you already plan to deliver?

A: We want to commit to the €40 billion issuance we have planned on the capital market. But we can be more flexible with the money market issuance while we create stability on the call on the capital markets. So, the €40 billion, I can't say we will never, ever cancel a DDA or tap auction. But generally speaking, we would like to stick to the €40 billion as we did this year.

Q: Which part of the curve is now gaining more attention and more demand from investors?

A: What we see over time is because of the steepening of the curve. There is some interest in the longer-term issuance.

Q: Is this already taken into account in your plans for 2025?

A: In general we have our issuance strategy, which we plan based on our policy framework with two indicators, as you may have seen, average maturity and the 12 month refixing amount. We have a target of at least 8 years for average maturity and it is from there that we plot our issuance strategy. And also, of course, we look to external circumstances to steer with the money market. Next year, we are going to evaluate our risk framework and that could end in a change of targets. But for now, we stay with 8 years as the minimum average maturity.

Q: To what extent are you expecting the 2025 issuance strategy to be more opportunistic? You mentioned some flexibility, and last year, the DSTA issued €77 billion under the global commercial paper program, which adds this flexibility.

A: I don’t know. What we see is that the cash deficit and therefore the funding need is even more uncertain than it was last year, and that means that we tend to create more flexibility in our program. Because normally we do 50-50. So, 50% is issued in the capital market and 50% is issued in the money market, and now it's a little bit more towards the money market. So that would mean that we will steer with more flexibility in that sense. But there is of course a boundary and that is because of our core values and issuance strategy. So, it's always a balance and we always check with the market what the issuance should be.

Q: Do you expect 2025’s issuance under the Global Commercial Paper Program to be higher than it was in 2024?

A: I can't say, because we have more money market instruments, not only commercial paper. We also have our DTCs (Dutch T-bills). So, I can’t say. Normally when there is a sudden shock, like with Covid-19, when we suddenly had a need for money, then we upscale the commercial paper activities. But generally speaking, it should be not very different from other years.

Q: You say that investor demand has generally increased in the longer part of the curve. Will you increase your long-term debt issuances throughout the year if this trend continues? Could you do it, for example, by opening your new benchmark bond with a maturity much higher than the 15 years minimum you established?

A: That is still to be determined, and that is different from other years because normally we issue a 30-year bond every five years or so. And now we are consulting the market to see whether we stick to a 15-year, 20-year or (around) a 30-year bond. Something in that range.

Q: In 2021 we asked the DTSA about the possibility of going beyond your current maximum maturity, which is 30 years as of now. Where do you stand in this regard?

A: It’s still the same. We are not going to go higher than 30 something years.

Q: So, you’re not expecting to issue anything beyond 30 years anytime soon?

A: No, not far beyond 30 years.

Q: What should happen for you to start pondering that?

A: Next year we are going to evaluate our risk framework. We of course look at the average maturity and what would be a good average maturity as a target. And there we could, of course, come up with another target. On the other hand, of course, we are also benchmarking ourselves with other debt management offices, and our current average maturity target of a minimum of 8 years is very common in the market. So, my expectation would be that we’re not going to diversify very far away from that target.

Q: You say you will reach the targeted average maturity level of 8 years by the end of 2024. What should be the optimal average maturity for 2025, given that the ECB’s easing cycle is expected to come to an end next year?

A: The target for 2025 would be the optimum, and that is a minimum of eight. It could be a bit higher, but we strive towards the 8 years.

Q: In your outlook for 2025 you say that you will leave €17-19 billion of the call on capital market undetermined for now, a significant increase from the €15 billion announced in the outlook for 2024. Why is that?

A: I think it's what we just discussed about the flexibility, because the money market gives us more flexibility than the capital market issuance, in which we really want to be consistent to show the market that it can count on us to issue the €40 billion as announced. On the other hand, you need flexibility on the money market, and the preliminary estimate of the funding need is higher than last year. So, then you do the remaining part in the money market. It's not that we will steer towards higher money market issuance.

Q: And when are you expecting to start consulting primary dealers about these undetermined issuances? And when do you think the first one might take place?

A: We have said that because of the strategy that I just explained, we will start quite easy on the money market. So, we will increase our program in the money market in June, just to make sure that we can still steer and if we have to revise our funding need downwards, that we don't have too many issuances done.

Q: In terms of your foreign currency issuance, do you expect the euro dollar weakness as a result of Trump's potential policies to impact your new foreign currency issuances?

A: No, not particularly. We swap our commercial paper program in US dollars back to euros. Also, when interest rates change, we stick to our issuance strategy, and the same goes for a devaluation of the euro dollar.

Q: On retail bonds, you still have no plans to issue one of these?

A: No. We have looked in that direction. That's what we do all the time, look into more exotic type of bonds, exotic for the DSTA. And we've seen that other countries do have a much longer history in retail bond issuance. We don't have that and that means that we don't have the capacity and the infrastructure in place to do this. So, if politicians decide to issue a retail bond - but I don't expect that, to be honest - that would have a big impact for the DSTA, and we would have to really do research on what it means for us with the long implementation path.

Q: In terms of green bonds, I see that in 2025, the green bond reopening is not scheduled for the first quarter, unlike last year. Should we expect it to happen in Q2, or would it have to happen in the second half of next year?

A: I honestly don't know, I can’t say.

Q: How is green bond demand evolving?

A: It’s good and it's stable. And that's because for us, it's like a normal bond for 20 years. When we issue these bonds, there was a lot of demand and it's still quite liquid. And also, we have committed ourselves to a certain amount of issuance. And that's why we're looking at what should be the next one. We are still asking ourselves if we should issue the 2040 or 2044.

Q: As far as I know you are still not doing any syndications.

A: We don’t, we are happy with our DDAs.

Q: So, you're not considering doing any syndications like other European DMOs do.

A: No, we get those questions all the time from Primary Dealers and investors. Doing these syndications, we do it in-house, which is fine. We think DDAs help us balance the best outcome for investors as well as taxpayers.

Q: Are there any other reasons why you don't want to go for syndications?

A: I think this is the most important. We are fine with this type of auction and we have a long history in it. It's a single price auction and we think we treat our investors in the best way by doing this. Should this be changed into syndications, we would have to dive into that and research whether it fits us. Of course, it could be that at some point in time we might do some kind of pilot, but that's always difficult to do in real life.

Q: But it's not on the cards, for example, for the next framework review?

A: No, it's not.

Q: What is the impact that French turmoil and the reaction in French spreads are having on Dutch bonds? Have you seen more demand for Dutch bonds because investors are trying to flee French bonds?

A: Around June last year we saw that our spread against Germany was increasing and we were performing better than semi-core countries. And so, the spread was normalising again after a while. What we see now is that our spread against Germany is narrowing, and that's because of the political uncertainty in Germany, of course.

Q: It’s more or less on the cards that Germany may abandon the debt brake. So, that would suggest that German issuance might increase. Do you fear a big impact from this on Dutch bonds too?

A: Of course, since the German bond is our reference bond when we issue a new bond, that could impact on that moment in time. But in general, I think it will stabilise. You can also see this with France: something happens and you have this spread widening or narrowing, and then after a while it goes back to normal.

Q: You mentioned the spread with the German bund. It has remained more or less in a modest downward trend in the past few months. Do you expect this trend to continue?

A: I couldn't tell, I don't know.

Q: I guess it depends more on the German side than on the Dutch side, right?

A: Right, I think so too.

Q: What do you make of the recovery of the Dutch economy? Does it have any impact on your issuance strategy or on the yield curve?

A: We haven't seen it so far, and I think it's also because our strategy is quite stable and consistent. So, we are not really dependent on the interest rate because we have flexibility as well as stability in our program. And that's why I think our AAA rating is very important for us. As long as we have that, it’s a sign that the economy is very stable and that we can profit from that.

Q: And looking to the United States, do you expect an impact from Trump's win on the Dutch economy, considering that it’s very export-oriented?

A: It’s interesting because you read a lot about this in the news. The president of our Central Bank thinks there's going to be a big impact on the economy and the Netherlands, but when we look at the CPB, they say that it will impact the US more than it will impact Europe. Of course, the Netherlands is export-oriented, but from that point of view, they say on trade, the impact will be not that big. Of course, it's not only about trade. There are still some other uncertainties concerning the start of the Trump administration, but we will monitor those closely. And if something happens to us in terms of a financial market impact, it will impact others in the Eurozone as well.