The Dutch State Treasury Agency won’t issue index-linked bonds in the near future, it said in its outlook for 2006.
At present, index-linked bonds are not attractive as an instrument for state financing, because they might increase the effect of inflation on the budget, instead of neutralising it, it explained.
“The movement of interest payments are more than proportional than inflation. A rise of inflation of 1%, will cause a rise in interest payments of 5%,” it added.
The agency indicated that it prefers combinations of the present instruments, as a way of financing at the lowest possible costs against an acceptable risk at the moment.
The Dutch state is expecting the issuance of between €28bn and €35bn of new capital market loans, the agency said.
According to the agency, the 30-year bond issued last April, will be reopened in 2006. In order to increase the liquidity of the 30-years bond of 1993, the agency announced a new bond with almost similar modalities, in combination with ‘strip and destrip facilities’.
“The only difference will be the coupon value, which will be probably considerably lower than the 7,5% of 1993.”
The Treasury Agency also announced an extensive evaluation of risk management, by a survey of the aims, instruments and benchmarks this year, it said. The result will be the base for its policy until 2010.
The decision not to issue index-linked bonds doesn’t make a big difference to the Pension Fund for Metalworking and Mechanical Engineering PMT, a spokeswoman indicated.
“The inflation component would be the average inflation in Europe. The amount of index-linked bonds with a similar inflation component, mainly issued by France, is sufficient to us,” she said.
“For the indexation of pensions, we take in account the Dutch inflation figures. European index-linked bonds fit well within this policy.”

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