Capital Markets Punish Netherlands for Slow Economic Recovery
AMSTERDAM, 13/08/13 - International investors are divesting Dutch state bonds because The Hague is braking growth with a one-sided focus on cutbacks. Additionally, the Netherlands is struggling with fundamental weaknesses, Het Financieele Dagblad newspaper concludes.
Where cutbacks were earlier considered the right thing to do, investors are now looking for growth. The Netherlands has a poor hand in that respect. The financial markets fear that the Dutch economy is unable to join in the European recovery.
That international investors are losing their interest in Dutch state paper can be seen in the interest rate differential with Germany. At the beginning of the year, this was 18.6 basis points for a 10-year loan, but it has now climbed to 37.3 basis points, an increase of nearly 19 basis points (0.19 percent). Other Triple A countries saw the spread widen by far less, for example by 5.9 and 0.6 basis points respectively in Finland and Austria.
The Netherlands faces problems that are difficult to solve with cutbacks: A crisis on the housing market, high private debts and rising unemployment. These are putting a brake on consumer spending and therefore on growth.
US fund manager Fidelity is ‘underweight’ in Dutch debt paper. According to fund manager Dave Simner, the higher interest rate on Dutch bonds does not offset the risks. “If we do want to take risks, we would prefer to choose bonds from Belgium or Finland.”
The influential bond investor Pimco already announced last week it had sold Dutch bonds. Fund manager Ben Emons told Bloomberg that he is taking into account a persistent contraction and a downgrade of the Netherlands’ credit status. “Interest rates could then rise to French levels.”
The three big credit rating agencies Moody’s, S&P and Fitch have put their outlook for the Netherlands credit status on negative. “The Netherlands faces a lengthy period of weak growth because consumer spending is declining,” S&P warned in June.
But some investors actually see reasons for stepping in now that bonds have dropped. “The Netherlands has been punished more severely than other countries,” says Jack Kelly of Standard Life Investments.