Funding policy

The State’s funding policy sets out guidelines and conditions for financing the state debt. Relevant questions concern the size of the total borrowing requirement; the use of funding instruments (maturities, timing); and the communication with the market.

What determines the total borrowing requirement?

The total borrowing requirement in a given year is determined by: (1) the redemptions on the capital market (both public and private debt), (2) the end-of-year outstanding money market volume of the previous year and (3) the (estimated) cash balance in the budget.

The total annual borrowing requirement determines the State’s total call on the international financial markets. The total call is split between the capital market and the money market. In principle, the refinancing of maturing bonds is done on the capital markets, on the condition that the money market volume remains at a sufficient level. Due to its flexibility the money market provides the first and most important buffer to absorb changes in the budget, either windfalls or setbacks. To maintain this buffer function the money market should remain at an adequate volume.

To illustrate: the recent shock to the financial markets, which resulted in government interventions in the financial sector at the end of 2008, led to a substantial increase in the State’s funding needs on the money market. Taking into account the medium-term nature of the additional funding needs, the DSTA has gradually shifted its funding to the capital market. As a result, the annual call on the capital market increased from the pre-crisis level of € 20 - € 24 billion to approx. € 50 from 2009 onwards.

Which financial instruments are used by the DSTA?

The DSTA uses a number of basic financial instruments, which mainly differ with respect to their maturity. The financial instruments used by the DSTA are:

issuance of capital market instruments (Dutch State Loans, DSLs); the DSTA no longer issues private loans, with an exception at the end of 2008 (see Outlook 2009)
issuance of money market instruments (Dutch Treasury Certificates, DTCs)
issuance of commercial paper (CP), both in euros and foreign currencies
money market deposits, for either borrowing or lending
collateralised loans/deposits with a repurchase agreement (sell-buy-backs, buy-sell-backs, better known as repo’s)

What are the maturities used by the DSTA?

From a liquidity perspective, it is important to achieve sufficient outstanding bond volumes. This enhances tradability. Furthermore, issuing in different maturities enables the DSTA to attract a broad range of investors. The maturity of bonds issued by the DSTA ranges from 3 to 30 year. Depending on the borrowing requirement, the DSTA will issue one to three new bonds annually, with a focus on the annual issuance of new DSLs in the core 3- and 10-year segments. The DSTA is committed to raise the outstanding amount of new 3- and 10-year DSLs to at least € 15 billion within the first year of issuance; after the initial issuance, bonds are regularly reopened.

New annual issues and secondary market trading establish a liquid yield curve up to ten years. Additionally, if the funding needs require doing so, the DSTA can choose to issue a 5- or 30-year bond. For new 5-year DSLs, the DSTA has a commitment of a minimal outstanding volumes of € 15 billion; for 30-year DSLs the commitment is at least € 10 billion. Due to its commitment to the long end of the yield curve the DSTA also aims to issue a new 30-year bond every 5 to 6 years.

When are auctions held?

In principal DSL-auctions are held twice a month, every 2nd and 4th Tuesday. Traditionally, no auctions are held in August, whilst December is seen as a reserve month. The launch of long-term benchmark bonds (5 years and longer) is done by a Dutch Direct Auction (DDA). Generally, DTCs are also auctioned twice a month, on the 1st and 3rd Monday. More information can be found at the Subjects DDA and Auction Methods.

Consistency and transparency

In the execution of its debt management policy, consistency, reliability and transparency are leading principles for the DSTA. These principles strengthen the reputation of a reliable and sound issuer, and helps to strengthening the ties with investors. The DSTA cooperates closely with banks (Primary Dealers and Single Market Specialists) in the process of issuing bonds and maintaining a healthy secondary market (via the quotation obligations). Through its periodic publications, the DSTA informs investors on the execution of the funding plan and new developments. The annual Outlook contains the funding plan for the upcoming year (borrowing requirement, funding plan and indicative issuance calendar). The Quarterly Outlook zooms in on the issuance calendar for the period ahead. Auctions and their results are announced by means of press releases. Updated information can be found on the website of the DSTA.

For more information:

Outlook

Publication | 02-11-2009

This is the link to the annual Outlook which contains the funding plan for the upcoming year.
Quarterly Outlook

05-11-2009

This is the link to the Quarterly Outlook, providing updates on the execution of the funding plan.
Issuance calenders

03-03-2010

This is the link to the annual and quarterly issuance calendars.