Dutch State publishes revised funding plan 2020

News item | 29-04-2020 | 16:39

The Spring Budget Memorandum gives a ‘rough’ estimate of the EMU-deficit for 2020 of € 92 billion as a result of the economic impact and measures taken by the government in light of the corona virus outbreak. As this update has a considerable impact on the funding need of the Dutch State, it has necessitated a revision of the DSTA’s funding plan.

The DSTA’s last update of the funding plan stems from 8 January of this year. On 20 March the DSTA published its issuance calendar for the second quarter. This relied on a preliminary estimate presented by the government of the increase in the funding need in the second quarter of € 45-65 bn, due to the measures previously announced by the government in relation to the corona crisis. The new information from the Spring Budget Memorandum relates to the funding need for the entire year.

Funding Need

Although the DSTA usually relies on the cash balance for an estimate of the funding need, at this stage no new estimate of the cash balance is available. Therefore, to give an insight into the amount of financing that is required for the rest of the year, the ‘rough’ estimate of the EMU-deficit of € 92 bn, as published in the Spring Budget Memorandum, will be used as a proxy for the cash balance. A more extensive update of the budgetary situation will be published by the government in June, based on new estimates by the Netherlands Bureau for Economic Policy Analysis (CPB). The DSTA will then give a new update of the funding need, which will be included in the quarter three Outlook.

Based on the information that is now available the DSTA foresees a funding need of € 135.8 bn for the current year:

Estimated funding need 2020 (in € bn)

	29-4-2020	08-01-2020
Capital market redemptions 2020	29.9	29.9
Money market ultimo 2019 (excl. cash collateral)	14.3	14.3
Change in cash collateral (until end of March)	-0.4	0
Buy-backs DSLs	0	0
Cash balance based on Budget 2020 figure (surplus)		-1.5
EMU-balance based on Spring Budget Memorandum 2020 estimate (deficit)	92
Funding need	135.8	42.7

The substantial increase in the funding need versus the last estimate provided by the DSTA in January is entirely due to the worsening of the government budget. The remaining difference with the previous figure is a small rise in the amount of cash collateral, which has a minor downward impact on the funding need.

Call on the capital and money market

Normally with an update of the funding need the DSTA also presents an issuing range for both the capital and money market, with the range for the capital market acting as a firm commitment. This time, however, due to the uncertainty of the situation relating to corona and the impact this will have on the budget deficit, the DSTA has decided to opt for a minimum issuance target for the capital market instead of the previously announced issuing range. This gives sufficient leeway for flexibility. The DSTA is committed to issue at least € 35 bn on the capital market in 2020, thereby increasing the call on the capital market compared to the issuing range of € 21-26 bn as announced in the Outlook 2020 published in December 2019. At the same time, this amount could end up higher depending on how the funding need unfolds.

Less guidance can be given on the exact call on the money market, as the money market will continue to serve as the main buffer for dealing with fluctuations in the funding need. However, it is clear that the DSTA will continue to make extensive use of its money market instruments, which includes bills (DTCs), commercial paper and deposits.

Revised DSL issuance calendar Q2

Due to the new information on the funding need the DSTA has also revised its DSL issuance calendar for the second quarter, which was published on 20 March 2020. The main change is the addition of a new DSL in the 5-7 year segment, which will be auctioned through the MTS platform (also used for tap auctions). The exact maturity, auction date, and target volume will be decided upon after consultation with Primary Dealers. Another change is that the target volumes of the 10-year DSL have been increased to € 1-3 bn instead of the original € 1-2 bn.

Revised DSL-issuance calendar second quarter 2020 (remaining auction dates)

Auction Date	Details	Target volume (€ bn)
12 May	Reopening DSL 15 July 2030	1  - 3
End of May / Beginning of June	New DSL in 5-7 year segment	to be determined
End of May / June	Reopening DSL 15 July 2030	1  - 3
End of May / June	Tap auction existing DSL	to be determined

Note: Remaining auction details, including the maturity for the new DSL and existing DSL, will be announced in due time, at the latest on the Wednesday prior to the auction (t-6).

Overview DSL issuances 2020

For the remainder of the year, the DSTA remains committed to issue at least those DSLs and volumes as announced in the Outlook 2020 in December 2019. The main implication of the higher funding need is that issuing volumes per DSL may well turn out higher than first anticipated. In addition, as stated above, a new DSL will be introduced this quarter in the 5-7 year segment. The launch of a new 30-year DSL is foreseen for the second half of the year. Moreover, the 20-year green DSL will still be reopened to reach an issuance size for the year of at least € 2 bn, thereby further contributing towards the minimum benchmark size of € 10 bn. More guidance on the time frame for issuance of remaining DSLs will be presented in the quarter three Outlook to be published in June, which will also include a detailed issuance calendar for the third quarter.

DTC issuance calendar Q2 keeps the same structure
The calendar for Dutch Treasury Certificates (DTCs) for the second quarter remains unchanged, as it already sufficiently takes into account a rise in the funding need. The scheduled DTC auctions for the second quarter are reposted below. The DSTA has the possibility to auction DTCs every week. In addition to the regular 3- and 6-month programmes, it has been decided that 9- and 12-month programmes will also be issued this quarter. The size of the programmes will be determined based on the funding need and after consultation with Primary Dealers, whereby the DSTA remains committed to providing sufficient liquidity in all DTC-programmes. For every auction date the DSTA has the possibility to tailor the number of programmes and the maturity of the programmes. This will be announced on the Wednesday prior to the auction (t-5).

DTC-issuance calendar second quarter 2020 (remaining auction dates)

Auction date*	Settlement date	Shorter-dated  programme	Longer-dated programme
4 May	6 May		29/10/2020
11 May	13 May	to be determined**
18 May	20 May	30/07/2020	29/10/2020
25 May	27 May	to be determined**
2 June	4 June		27/11/2020
8 June	10 June	to be determined**
15 June	17 June	28/08/2020	27/11/2020
22 June	24 June	to be determined**

* Auction details will be announced on Wednesday prior to the auction (t-5).

** Maturit(y)(ies) to be determined after consultation with Primary Dealers.