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Belgium’s €22 billion bond sale signals low bank rate frustration

In a historic move, Belgium has successfully raised a staggering €21.9 billion ($23.65 billion) from retail investors through a bond sale, eclipsing previous records and signaling the public’s growing dissatisfaction with stagnant bank deposit rates. Launched on August 24, this initiative represents the largest fundraising effort from households in Belgium’s history, according to the country’s debt agency, and is likely the biggest retail bond sale in Europe to date.

This monumental sale amounts to approximately 5% of all Belgian deposits and far surpasses the €5.7 billion garnered during the peak of the eurozone debt crisis in 2011. It also tops Italy’s own record-breaking €18 billion bond sale to savers earlier this year. The overwhelming success indicates that Europeans are actively looking for alternatives as traditional banks have been slow to increase savings rates, even while market interest rates rise amid central bank efforts to combat inflation.

High demand for these bonds reflects a broader European trend of governments targeting savers as a vital source of funding. Other countries like Italy and Portugal have similarly reallocated large portions of their national budgets to incentivize household investments. Belgium’s one-year bond, offering an attractive interest rate of 3.3%, easily outperforms the average savings account rates, which hover around 2.5%, according to financial aggregator website Spaargids.

Technical difficulties arose multiple times during the bond sale, according to Jean Deboutte, a director at Belgium’s debt agency, indicating the extent of consumer enthusiasm for the offering. This comes as governments across Europe are grappling with ways to offset the financial strain households face due to skyrocketing living costs, all while gains from rising interest rates remain elusive.

Though demand for the Belgian bonds has been strong, major banks have been slow to respond with their own increased savings rates. Yet, the government’s financial strategy doesn’t end with this bond sale. Belgium plans to further entice savers by slashing withholding tax from 30% to 15% on these specific bonds, pending legislative approval. The impact of this historic sale is far-reaching: Belgium’s debt agency anticipates it will not only reduce short-term debt by over €10 billion in 2023 but also lessen longer-term debt issuance by over €2 billion and boost cash reserves by approximately €9 billion.

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