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It’s all quiet on the Dutch bond market front.
With just two days to go before voters in the Netherlands decide whether they want to follow the anti-establishment paths set by the UK and US, Dutch financial assets are showing no obvious signs of stress.
A fresh diplomatic spat with Turkey – which has led to riots on the streets of Rotterdam and provide an apparent boon for eurosceptic, anti-Islam candidate Geert Wilders – is also failing to ripple through bond markets today.
The Netherlands government borrowing costs – reflected by its 10-year bond yields – hit a near 12 month-high of 0.72 per cent last month but have since receded to around 0.7 per cent. Yields have slipped another 3 basis points today in the aftermath of the row with Ankara over the weekend.
Meanwhile, the spread between benchmark 10-year Dutch and German bonds – a key sign of market stress in the eurozone – has risen just 10 basis points since the start of the year, in line with most of the eurozone’s government debt (see chart below).
This suggests the extra premium demanded by investors to hold Dutch bonds instead of German Bunds is less connected to domestic political dramas concerning the resurgent Mr Wilders and more to do with the level of support for eurozone bonds from the European Central Bank.
ECB data from recent months shows the central bank has been “over-buying” Dutch government bonds, along with those of Germany and Italy according to its QE parameters, as it finds ways to meet its €80bn monthly asset purchase target.
In the face of an asset squeeze – where the ECB has been struggling to hoover up eligible assets from across its member states – numbers from ABN Amro show the Netherlands has been one of the biggest beneficiaries from the central bank’s shift in QE composition (see first chart).
Kim Liu at the Dutch bank highlights the extent of the ECB’s deviation from its capital key rules where the proportion of government debt is in line with the size of its economy. Germany, the biggest member state, hoovers up over a third of ECB QE and has also benefited from ramped up purchases while Portugal has seen “under-bought” since the start of the year.
This disproportionate levels of Dutch bond buying has arguably helped keep a lid on yields.
And to add to the mixs, credit analysts at Dutch bank Rabobank note investors are keeping the faith with Dutch bonds as they take heed in a promise from the country’s mainstream parties who have ruled out the idea of forming a coalition government with Mr Wilders’ Party for Freedom.
Coupled with a still healthy and growing economy – reflected in its AAA credit rating – demand for Dutch bonds is holding steady. A key test of that appetite is due when the Dutch government sells a tranche of five-year debt just a day ahead of the election on Wednesday.