Negative interest rates, which appeared in 2014, have allowed Belgium to get more than one billion today. And in the coming years this figure will double. Our country has even earned even more by borrowing at very low rates!
On April 25, Belgium issued 1.542 million 10-year bonds at 1.412%. Very low in the historical perspective, but the highest since July 2014, it was emphasized in the media. This is because interest rates have hardly stopped falling since the mid-1990s, until they became negative in 2014 after a small test run in 2012. The first to suffer were treasury certificates, four-, six- and 12-month financing instruments. Since April 2015, 5-year bonds, in turn, have fallen into the red. In July 2019, 10-year bonds will turn red. “I would never have imagined this a few years ago,” said Jean Debutt, director of the Federal Debt Agency, responsible for strategy, risk management and investor relations. Germany, yes, but for our country it was still quite strange … ” . Explanation: The Debt Agency manages public debt at the federal level, which accounts for 80% of total public debt.
On April 25, Belgium issued 1.542 million 10-year bonds at 1.412%. Very low in the historical perspective, but the highest since July 2014, it was emphasized in the media. This is because interest rates have hardly stopped falling since the mid-1990s, until they became negative in 2014 after a small test run in 2012. The first to suffer were treasury certificates, four-, six- and 12-month financing instruments. Since April 2015, 5-year bonds, in turn, have fallen into the red. In July 2019, 10-year bonds will turn red. “I would never have imagined this a few years ago,” said Jean Debutt, director of the Federal Debt Agency, responsible for strategy, risk management and investor relations. Germany, yes, but for our country it was still quite strange … ” . Explanation: The Debt Agency manages public debt at the federal level, which accounts for 80% of total public debt. These figures are negative, yes, but weak. While the champion in this field, the three-month certificate issued on December 7, boasts an approach of one percent (-0.926%), for bonds called OLO, it is usually only a few tenths of a percent. For 10 years, the symbol of longevity, while falling to a minimum of “only” -0.4% (more precisely 0.399%!) On October 19, 2020. The 40 billion OLOs that Belgium produces year after year, and on the basis of about 30 billion certificates, profits are growing rapidly. Thus, back in 2015, our country collected 33.5 million, the amount increased to 120 million next year and to 170 million in 2017. As shown in the graph below (“Total negative percentage obtained”), this favorable manna then came almost to exclusively from the treasury certificates. It is from 2020 that bonds, in turn, make a significant contribution to the total. “There is a good chance that this year we will exceed 276.5 million last year,” explains Jean Debutt. “We could be close to 300 million. This means that the 1.137 million recorded by 2021 is only conditional! Temporary for two reasons. The first has just been mentioned: treasury certificates are still in the red. On April 25, the one-year term was met by -0.21% on secondary market, while the three-month showed a direct -0.65%, which is close to the average in recent years.The second reason for these so far previous figures is much more difficult.The above 1.137 million is actually based on accounting.What to say? they keep the profit – otherwise the name of the negative interest – earned for the current year.However, for example, for a 10-year OLO, this profit by definition lasts … for 10 years.Example: OLO launched on January 12, 2021 at a rate of -0.216% and n and an impressive six billion. In 2021, it offered a profit of 12.3 million, and this year it will be 13 million. But for the entire service life, this profit will exceed 140 million! What is true for this commitment is just as true for others. “Thus, the 109 million recorded this year at the level of OLO, will automatically be found in the accounts for several more years,” said Jean Debutt. Then this amount will gradually decrease, to disappear in about ten years. That is, when all OLOs at negative rates were repaid. How much does this mean? Based on the current problems, we reach 777 million. Of these, 359 million for the current and next year alone, a figure that will grow even more. Thus, this amount is added to 1,137 million recognized by 2021. In short, the benefit that Belgium has received from negative interest rates will be about two billion. These billions effortlessly are a dream come true, but that’s not the point. The Director of the Debt Agency has always stressed that the most important thing was to take advantage of very low rates for issues with longer maturities than before. To enjoy it for a long time and thus ease the burden on the future. Illustration: the average maturity of issues for the year reached a record in 2021 – 17.9 years. As for the average maturity of the total amount of existing bonds, from 2019 it has increased to about 10 years, ie less than seven years in 2011. This is more impressive than it seems, because this figure includes short-term certificates, which are obviously immersive on average. In any case, you can not abuse too long terms. “We issued a 30-year bond this year, after the second 50-year bond in the past (the first was launched in April 2016, editor’s note). It doesn’t make much sense to go beyond that, because there’s really no active market. As for the half-century in question, it meets the needs of insurance companies and pension funds, whose obligations span several decades.This 50-year bond from February 2021, OLO number 93, was very well received as it received 5 billion Rate: barely 0.69% Low, but not negative … except that it is much lower than current inflation, so profits are clearly negative in real terms! The inflation rate, which is expected to be higher than expected in a few years, is a (large) billion dollar bonus, and in any case, the fall in the average interest rate on Belgian government loans is impressive: 1.29% beginning of 2022 with 3.81% again in 2011. The result: debt service, ie the total amount of interest payable, is expected to be 6.5 billion in 2022, as in 2023 for the rest, against tens of billions by 2013. And this is for (federal) public debt, which has increased by a good quarter. Expressed as a percentage of GDP, this burden has fallen from 3.21 to 1.21% in 10 years. I am not sure that this year we will fall slightly lower, as announced in the budget forecasts, because they expected the growth of long-term rates much more modest, ie an average of 0.76% for the whole year. But we are at 1.4% … At least we can be happy with the extremely low rates in recent years compared to the current level, from which the state will benefit greatly. Rejoicing, but without euphoria, reassures Jean Debutt: these low rates are the result of major crises in recent years, from the financial crisis to the coronavirus crisis, through the euro crisis, which has cost the lender dearly. “State. So this is not really a gift, but rather a compensation.