Linear Bonds (OLO & Green OLO)

WHAT ARE BUY-BACKS?

  • The buy-back by the Treasury of an OLO is the reverse of an OLO issue: the Treasury buys back OLOs for a certain amount after which, in general, the securities bought back are amortized.
  • The buy-back program applies to bonds with a remaining life of 12 months or less. It gives investors the possibility to sell their securities before final maturity. By buying back OLOs, the Treasury pre-finances future OLO redemptions.
  • The Primary and Recognized Dealers can offer the bonds to the Treasury via the telephone. Pricing transparency is ensured by the fact that the Treasury displays bid prices on MTS Belgium on every working day, during at least 4 hours. The Primary Dealers can also sell their bonds through MTS Belgium at the posted price.

How are OLOs bought back through a reverse auction?

The Treasury can also organise a reverse auction so as to buy-back, at once, a larger amount of one or more bonds.

During a reverse auction the Primary and Recognized Dealers introduce their offers and indicate the nominal amount and the proposed buy-back price.

In the case of a reverse auction, the Treasury sets a maximum price under which all offers are accepted.

  • The offers proposed at the maximum price may be proportionally scaled down or totally accepted.

BE-Strips and fungibility

Since 1992, the capital as well as the remaining interest payments (coupons) of an OLO can be negotiated as dematerialized and independent zero coupons. Belgium was after France (1991) the second country of the euro area that allowed the stripping of bonds (OLOs).

Since 2011 these zero coupons are made fungible if they have the same maturity date; irrespective the capital or the interest payment which they represent. Zero coupons can be reconverted to OLOs with the same maturity date, when zero coupons are added in proportion to the remaining interest payments.

A consequence of fungible strips is that at the reconstitution synthetic OLOs can be created. The outstanding amount in a particular OLO-line can as such exceed the amount that was initially issued on the primary market.

For BE-Strips with coupon 28 March en 28 September no CAC clauses were added. BE-Strips with coupon 22 June and 22 October do have CAC clauses.

Advantages of investing in Strips

  • Coupons must not be reinvested.
  • The duration of a strip is longer than the duration of an OLO with the same maturity date.
  • The yield curve of BE-Strips is more convex than the yield curve of the underlying OLO.  

The price of BE-Strips is calculated as follows

P= 100/((1+y)^(n+f))

Whereby:

n = the number of complete years between the value date of the purchase and the maturity date of the BE-Strip

f = the number of days between the value date of the purchase and the original maturity date of the coupon (in casu 28 March, 28 September, 22 June or 22 October) divided by 365 or 366

BE-Strips are negociated with value D+2.

OLOs (Linear Bonds) > Outstanding amount of strips (PO + BE-strips) (billion EUR)

OLOs (Linear Bonds) > Nominal amount stripped and reconstituted (million EUR)  

#1F497D
Reconstitution
#98B954
Stripping

OLOs (Linear bonds) > Lines and outstanding at 04.07.2019

Maturity Date Coupon ISIN Code Nr Net available
(EUR)**
Buy-backs in portfolio
(EUR)
Capital Withdrawn
by stripping (EUR)
%
28/09/2019 3.00 BE0000327362 67*   10,469,500,000.00  2,192,500,000.00          25,869,327.44 0.25%
28/09/2020 3.75 BE0000318270 58   19,226,000,000.00     260,000,000.00          11,666,077.26 0.06%
28/09/2021 4.25 BE0000321308 61   16,530,000,000.00     415,000,000.00          31,381,055.16 0.19%
28/03/2022 4.00 BE0000308172 48   14,024,000,000.00      60,000,000.00     
28/09/2022 4.25 BE0000325341 65   16,176,000,000.00      70,000,000.00          22,000,000.00 0.14%
22/06/2023 2.25 BE0000328378 68   13,535,000,000.00     117,000,000.00     
22/10/2023 0.20 BE0000339482 79     9,502,000,000.00                        -       
22/06/2024 2.60 BE0000332412 72   15,735,000,000.00     150,000,000.00     
22/10/2024 0.50 BE0000342510 82   10,810,000,000.00                        -       
22/06/2025 0.80 BE0000334434 74   16,452,000,000.00                        -       
28/03/2026 4.50 BE0000324336 64   10,708,000,000.00                        -       
22/06/2026 1.00 BE0000337460 77   14,388,000,000.00                        -       
22/06/2027 0.80 BE0000341504 81   13,728,000,000.00                        -       
28/03/2028 5.50 BE0000291972 31   19,344,939,136.01                        -       2,145,759,160.62 11.09%
22/06/2028 0.80 BE0000345547 85   14,724,000,000.00                        -       
22/06/2029 0.90 BE0000347568 87   10,347,000,000.00                        -       
22/06/2031 1.00 BE0000335449 75   11,228,000,000.00                        -       
28/03/2032 4.00 BE0000326356 66     8,204,000,000.00                        -          261,373,682.51 3.19%
22/04/2033 1.25 BE0000346552 86     5,772,000,000.00                        -       
22/06/2034 3.00 BE0000333428 73     7,784,000,000.00                        -       
28/03/2035 5.00 BE0000304130 44   19,604,692,800.00      30,000,000.00     2,660,552,029.81 13.57%
22/06/2037 1.45 BE0000344532 84     4,904,000,000.00                        -       
22/06/2038 1.90 BE0000336454 76     7,303,000,000.00                        -          179,300,000.00 2.46%
28/03/2041 4.25 BE0000320292 60   17,299,000,000.00                        -       2,544,823,381.30 14.71%
22/06/2045 3.75 BE0000331406 71     9,737,000,000.00                        -          431,500,000.00 4.43%
22/06/2047 1.60 BE0000338476 78   11,064,000,000.00                        -          144,500,000.00 1.31%
22/06/2050 1.70 BE0000348574 88     6,069,000,000.00                        -       
22/06/2057 2.25 BE0000343526 83     4,878,000,000.00                        -          566,500,000.00 11.61%
22/06/2066 2.15 BE0000340498 80     5,313,000,000.00                        -          873,400,000.00 16.44%
Tot.:        344,859,131,936.01  3,294,500,000.00     9,898,624,714.10  

Buy-back possible
** Available in the market (Issued amount less buybacks)

Capital withdrawn by stripping - Net available of strippable lines :  
2.87%   (9,898,624,714.10 / 344,859,131,936.01)

WHAT IS A REPO FACILITY?

  • In order to guarantee the availability of securities, the Belgian Treasury has created a repo facility for its primary and recognized dealers. This measure aims to ensure a good functioning secondary market of OLOs and Treasury certificates.
  • If there is a delivery problem, then the Treasury provides for the missing securities via a repo transaction concluded for one business day renewable for a maximum of 20 business days.

 WHAT ARE THE CONDITIONS ?

  • The Treasury has determined the maximum amounts available, depending on the lines and securities concerned. Each dealer has a right to a maximum amount of EUR 500 million for OLOs and Treasury certificates together.
  • The repo rate is Eonia minus a spread.
  • All requests for use of the repo facility should be addressed to the Treasury before 2.30 PM.