BELGIUM: Some Curious Timing Surrounding The Downgrade

belgian waffles

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A regular reader in Belgium notes some interesting timing with regard to Friday’s downgrade by S&P.—-

Although for months several Belgian politicians have been saying that S&P’s threat to downgrade Belgium’s credit rating would not be executed, immediately after the downgrade-PR was released they said “it was widely expected and they saw it coming”. We’re fortunate to have such visionary
politicians.

Immediate effects of the S&P-downgrade:

1. Anticipation pushed our 10 year bond yield above 5.80%

2. The government-forming negotiations – which were halted earlier this week – were reanimated and within hours there was an agreement on a budget for 2012 (too bad S&P didn’t intervene much faster, that might have saved us months of time wasted). Now, all we need is a federal government to execute the budget plan asap.

3. On Thursday (11/24) our national debt agency launched a new tranche of so called State-notes (5 year yield @4% at par). The same day Prime Minister Yves Leterme told Parliament and every media outlet which was willing to listen that this was a very good deal for the government and for the subscribers. Only history will tell if he knew that the next day S&P would downgrade our debt.

What’s even more striking is that at the same moment, people could buy identical notes on the secondary market yielding at least 1% more. Yes, he sure wasn’t lying about it being a very good deal for the government. In less than 48 hours and after massive, never been heard before pump-talk by government officials, more than 518 million EUR of those notes have been sold. Subscription period ends 12/02/11.

All in all: as we have an agreement on the budget, it is very likely a new government will be installed in the next few days. That will be a government led by a socialist Prime Minister (Elio Di Rupo) for a country
which currently has to pay 5.8% on 10 year paper and where it is very unclear if the proposed budget will be able to calm the bond vigilantes. I wish him good luck, his infamous friend, Jorgos Papandreou, did so too
(see exclusive article by De Standaard: http://standaard.be/artikel/detail.aspx?artikelid=DMF20111125_169).

Good luck, Elio.

Best regards,

Bart Demyttenaere

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