A Vienna Yardstick for Brussels ?
The headlines over the coming days will be in the style of "Belgian debt perceived as core reliable AAA". And most likely a lot of politicians will grasp the opportunity to say that our present government is doing a hell of a job, just have a look at those yields (all time low 10y < 2.5%). Now we can always be cheerful about these developments when putting up our "taxpayer's hat". From an investor point of view, we have voiced our opinion in other recent blogs. But is this really an achievement of "good policy-goed bestuur" or is there something else going on ?
Well, I have a different point of view in the run-up to this present hunt for ground zero yields, at least what Europe is concerned. Because it all started some weeks ago when in fact every one was already hiding in safe German, Dutch and Finish bonds. These countries were already for quite some time in the twilight zone of ground zero yield . The rally on Austrian bonds took place and they overtook France in the mean time. A current check even confirms that within the AAA EMU zone, they are the best AAA performer. So the game of spread tightening kicked of with Austria, followed by France and Belgium now being the last of the pack to narrow the gap. But that is something entirely different than "goed bestuur", it's just the market mechanism of opportunism and with a lack of candidates at the end, Belgium enters the stage :
Now Austria is a special case. Austria in fact managed to successfully launch some very long range bonds this year : In June a 2044 emission (coupon 3,15%) and in January even a 2062 emission (coupon 3,80%). So they successfully secured long term funding at a "reasonable" rate as far as the tax payer and the asset-liability manager more or less is concerned.
So my challenge towards our Belgian Treasury and politicians blowing their horns right now would be as follows : Let's put this to the test and do a similar Austrian exercise : If the BelgianTreasury would succeed right now in launching 30 and 50 year bonds at current market conditions, congratulations and chapeau bas ! If not, than the reality check might kick in rather sooner than later and you really should not blow your horns too soon. It basically means that as far as (long term) safety is concerned, the demand is not there. And the current "easy" budget control - which apparently was not so easy after all - might seem to become a stupid dress rehearsal after the facts. Even politics should know by now the concept of 15 minutes of fame.