Hunting for returns, savers dash for euro zone government debt

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By Yoruk Bahceli

(Reuters) – Savers across the euro zone are dashing for government debt to secure returns on their cash as banks struggle to keep up with surging interest rates.

Leading the way is Italy, which sold a record 18.2 billion euro retail bond this month to increase domestic holdings of its debt.

But that’s just the tip of the iceberg.

Portugal has shifted half of this year’s funding to savers, Belgium expects a ninefold increase in retail bond sales, and Spanish savers are piling into Treasury bills.

The scale of demand is a surprise to debt managers and underscores the rapid return of savers to dedicated debt programmes that they have shown little interest in for a decade.

Their return marks the latest structural shift since high inflation drove the European Central Bank to pull out of negative rates and hike borrowing costs steadily over the last year.

For issuers, it’s a sign of confidence that new buyers are moving in as the ECB winds down its bond holdings.

“We thought that these movements somehow would lose steam, because savings are limited,” said Rui Amaral, board member at Portugal’s debt agency.

“Portugal is growing fast… but savings are not growing as fast as for us to (have foreseen) a continuing surge in these retail investments.”

Having planned 3.5 billion euros for the whole year, Portugal has already sold around 10 billion euros of new savings certificates to retail investors, Amaral said, up from 4.6 billion euros in 2022 when demand started returning and a mere 500 million euros in 2021.

It has slashed this year’s bond and treasury bill sales by 8.9 billion euros in favour of savings certificates, of which it expects to have sold 12 billion euros by year-end — half its 24.8 billion euro 2023 funding programme.

“Banks like everywhere else in Europe are not very fast in increasing remuneration of deposits. So what you see is just an influx from a lot of bank deposits being transferred to (savings) certificates,” Amaral said.

This means around 15% of outstanding Portuguese government debt now sits with retail investors, versus 10% in recent years.

Belgium meanwhile has issued 390 million euros of state notes to retail investors this year, the highest since 2011.

Debt agency director Maric Post expects issuance of up to 1 billion euros by year-end, four times the 250 million euros pencilled in for 2023 and up from 109 million euros in 2022.

This would take demand for retail bonds back to levels seen in the early 2000s, Post said.


In Spain, individuals held 15% of all outstanding Treasury bills as of March, up from almost zero since 2015 and the highest level on record according to Treasury data going back to 2002.

But individuals still only hold 1% of its 1.3 trillion euro public debt overall, a spokesperson said. Scope Ratings says Spain should tap these investors to diversify its refinancing risk and contain borrowing costs.

Spanish banks pay the lowest rate on deposits among big euro zone economies. One-year deposits return 1.3%, compared with 3.7% on 12-month bills.

“Suddenly you realize your money parked in deposits is paying you peanuts, when it could pay you something much more juicy in government bonds,” said Societe Generale rates strategist Jorge Garayo.

Dedicated retail debt such as that sold by Portugal and Belgium helps non-professional investors avoid losses from market fluctuations, provide tax advantages and are easier to buy.

In France, where millions of savers deposit money in special accounts paying a regulated rate, demand comes from banks themselves, said debt agency head Cyril Rousseau.

The institutions holding the deposits are buying French inflation-linked bonds to generate the 3% rate they pay savers, which is partly indexed to inflation, he said.

Domestic investors bought 63% of a 3 billion euro bond linked to French inflation sold this month, and banks’ asset and liability management divisions took 37%, signalling most of the debt sale was “driven by the need of investing the regulated retail deposits,” Rousseau said.


Euro zone household ownership of government debt varies, from practically zero in places like Germany to the high share in Portugal, ECB research shows.

Savers are not expected to replace the trillion-dollar funds that buy the lion’s share of government debt, but they can be a powerful buffer during a crisis.

Italy first launched retail bonds in 2012 amid the euro zone debt crisis, reducing reliance on international investors as borrowing costs surged.

Savers also bought a record 5.7 billion of Belgian debt in December 2011.

“We saw a very strong recovery of spreads after that issuance,” Post recalled, referring to the additional borrowing cost Belgium pays over Germany.

“So that was always also one of the reasons why we kept the product on the shelf, even when the levels were very low and the interest from the public was very low.”




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