US Dollar Dutch State Bond

An introduction to the Dutch State Treasury Agency

The Dutch State Treasury Agency (DSTA) acts on behalf of the Minister of Finance on the financial markets. Its objective is the efficient and effective management of the State debt and to fulfil the financing needs of the State through financial market transactions. Based on its mandate, the DSTA executes its funding according to the leading principals of consistency, reliability and transparency. These principles should help to strengthen the reputation of a reliable and sound issuer and to enhance ties with investors. The DSTA cooperates closely with banks (Primary Dealers) 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 published in December contains the funding plan for the upcoming year (borrowing requirement, funding plan and indicative issuance calendar). The DSTA uses a number of basic financial instruments, which mainly differ with respect to their maturity.

Gebouw van de voormalige Holland-Amerika Lijn
Image: Outlook 2014
Building of the former Holland-America Line

Issuing a US dollar denominated Dutch State Bond

The objective of issuing US dollar denominated Dutch State Bonds by the DSTA is to supplement its euro funding. The DSTA seeks to seize the opportunity of savings versus the domestic cost of borrowing in euros and to diversify and broaden its investor base. The issuance of a Dutch State US dollar bond introduces one of the Euro Area’s core AAA Sovereigns with the strongest credit reputation to the US dollar market. The introduction includes rarity value of Dutch credit for investors, with a spread to US Treasuries and strategic access to a RegS/144a format AAA Sovereign debt for investors with dual settlement in Euroclear and DTCC. Timing of a US dollar issuance depends on an alignment of after-swap cost savings for the Dutch Treasury versus its Euro issuance and relative value on a re-offer basis for investors versus other Sovereign peers. The first issuance of a Dutch State US dollar bond took place on 16 February 2012. All information on this USD Dutch State Bond can be found here. The second issuance took place on 5 September 2012. All information on this USD DUtch State Bond can be found here.

US dollar bond - Dutch Direct Auction

In the course of carefully monitoring the markets, the DSTA intends to seize a window of opportunity to pursue a strategic bid of the US dollar sector. If a window of opportunity occurs and the DSTA were to proceed it would use a USD - Dutch Direct Auction for the issuance of a US dollar denominated Dutch State bond. This unique type of auctioning - which was also used for both previous auctions in February and September 2012-  aims to encourage a broad and diversified participation of end investors. The USD-DDA entails a clear non-discriminatory, rules-based system that carries elements from both a syndicate and a Dutch auction. The rules guarantee an equal treatment within investor types and prevent end investors from the ‘winners curse’ of overpaying in the auction by allocating all successful bids at a single uniform price. The DSTA monitors the proceedings of the auction as the sole book runner and guarantees confidentiality of the end investor to third parties. Furthermore, three Primary Dealers will be chosen as Primary Advisors to assist the DSTA with the preparation, promotion and execution the USD-DDA. Once the US dollar transaction enters into its execution phase a number of additional Primary Dealers will be selected to further support the sales and marketing activities. This reinforces another pivotal characteristic of the DDA; enabling investors to subscribe directly to the US dollar issuance via a Primary Dealer of their choice, ensuring a broad and diversified investor base.