Market value of Dutch government bonds plummets

19/04/2011 15:00

Investors in Dutch government bonds faced severe losses in the first quarter of 2011. The mounting interest rate on the capital market created a loss of more than 7.6 billion euro (nearly 3 percent) at the end of the first quarter relative to the end of 2010. The loss was not offset by the interest on government bonds.

Mounting interest has downward effect on exchange rate

Interest on the capital market has risen continually since September 2010. In various countries in the European Union, public finances are under pressure, which becomes manifest in lower prices for government bonds. Still, investors in government bonds realised a total profit of nearly 4 billion euro over 2010, i.e. a return of nearly 2 percent. At the end of August 2010, profits amounted to nearly 16.5 billion euro. The majority of bonds issued by the Dutch government bonds are in foreign hands.

Bond prices

Bond prices

Value private sector bonds also down

The value of bonds issued by financial and non-financial institutions also reduced in the first quarter of 2011, although, with 1.5 percent, the loss was less substantial than the loss on public sector bonds. The interest on bonds issued by financial institutions was higher than on government bonds. Wavering between risk and interest rate, investors seem to have opted for bonds issued by financial institutions in recent months rather than pubic sector bonds. As a result, bonds issued by financial institution performed better.

Value of bonds quoted on the stock market

Value of quoted bonds 881 billion euro by the end of the first quarter of 2011

At the end of the first quarter of 2011, the value of bonds on the Amsterdam Stock Exchange totalled 881 billion euro, 4 billion euro down on the end of 2010. The total value of bonds is determined by the market price, emissions and redemptions.

In 2010 and the first quarter of 2011, the Dutch government on balance issued extra bonds worth 30 and 3.5 billion euro respectively to finance the public deficit. Additionally, the government has used government bonds for long-term financing in 2010 instead of short-term loans with, for example, Dutch Treasury Certificates. By the end of 2010, the value of government bonds totalled 305 billion euro. In the first quarter of 2011, the total value marginally reduced to 302 billion euro, but the financial sector is still the most prominent borrower on the bond market with an overall value of nearly 550 billion euro at the end of the first quarter of 2011.

Jos van Heiningen