Money markets

A part of the debt of the Dutch State is financed in the money market. The DSTA counts operations with maturities from 1 day to 1 year to the money market. The issuance of T-bills is an important segment of the European money market. Many states issue T-bills with maturities ranging from 3 to 12 months.

Graanveld in de Noordoostpolder
Image: Outlook 2015
Grain fields

 In addition there is a very active European market for deposits. This market consists of governments, banks and large companies borrowing and lending each other short-term cash (from 1 day to several weeks). Finally, the money market includes the market for Commercial Paper (CP). CP is a standardized fixed income security with flexible durations.

The treasury balance

European rules forbid states to overdraft their account at the central bank. The DSTA maintains a treasury balance between 0 and 200 million euro at the end of each day. However, there is a possibility to maintain a higher treasury balance occasionally.  Due to continuous fluctuations in the State's account at the Dutch Central Bank, the DSTA needs to tap both the money market and capital market. It therefore issues T-bills, dubbed Dutch Treasury Certificates, and borrows and lends cash. Furthermore, the State issues Commercial Paper. Due to its flexible durations, CP is used to fill the 'maturity gap' between cash deposits and DTCs.

T-bills (DTCs)

T-bills are, just like bonds, a debt of the State to the bearer of the instrument. Bonds, however, have maturities of several years, while T-bills are short-term paper. Redemption of T-bills takes place on average 3 or  6 months after issuance, but maturities in between are possible as well.

The DSTA auctions DTCs on a discount basis. This implies that, with positive interest rates, investors pay at issuance a lower amount than the nominal value of the DTC. At the end of its maturity the State pays the nominal value to the investor, which includes the interest remuneration. The difference between the purchase price and the nominal value represents the interest remuneration.

DTC issues are announced in the quarterly calendar and in press releases. Auctions are held on the first and third Monday of each month. Each auction consists of multiple programs, i.e. maturities. The DSTA uses the Bloomberg Auction System for the auctions. Fore more information see the Subject Auction methods.

Global Commercial Paper programme

Global Commercial Paper (GCP) is a standardized fixed income security with a flexible start and end date and with a short maturity varying up to 12 months. GCP serves as a ‘bridge’ between shorter-term cash deposits and longer dated less flexible DTCs. The use of this third money market instrument makes cash management more flexible and therefore it anticipates better the short term funding need. In this way, temporarily overfunding because of inflexibility of the longer-dated funding instruments can be prevented and therefore reduces the need to lend deposits. In conclusion, GCP leads to cheaper funding of State debt and a decreases the credit risk.

GCP is available for US investors in the form of US Commercial Paper (US CP) and for non-US investors in the form of Euro CP (ECP). US CP is only issued in US Dollars and ECP is issued in euro, US Dollars, Swiss francs, British pounds and Norwegian kroner.

In contrast to the other debt instruments of the State, GCP is thus also issued in foreign currencies. Therefore new investors can be reached and possible arbitrage opportunities for the State are created. The currency risk is completely hedged by FX swaps.

Issuance of GCP takes place via selected dealers. In contrast to DSLs and DTCs, GCP is not issued by means of auctions at fixed moments in time. The market is entered on a day-by-day basis and is demand-driven. Like T-bills, GCP is discount paper. Whenever the DSTA is in the market for GCP, the DSTA quotes indicative prices on Bloomberg page DSTA06. These prices are valid for GCP with standard maturity terms. Broken dates are available on request.