Austria is no stranger to innovating and creating new products in the government bond market. In 2012, it was the first sovereign to issue a dual-tranche syndication. In 2017, it brought Europe’s first syndicated century bond and a year later, in 2018, it was the first European sovereign to use blockchain technology in government bond auctions.
Meanwhile, in 2022 and 2023, Austria became the first sovereign to issue green Treasury bills and commercial paper respectively, as it provided a template to bring short-term investors to the sovereign green bond market. Now, Austria has innovated once again with the launch of the world’s first sovereign green money market product for retail investors in April.
Named the green Bundesschatz, the product is unique for a number of reasons. First is the tenor of six months which defines it as a money market product. An additional four-year tenor is also offered. The conventional (i.e. non-green) Bundesschatz has an even shorter starting point with a one-month offering. But more importantly, these products have no fees or charges to purchase or hold them, meaning they offer a real competitive alternative to products being offered by banks to savers.
The green retail product is a natural extension of Austria’s green commercial paper and Treasury bills. While both products can theoretically be bought by retail investors, they would come with costs and charges. Now, however, Austria is offering short-term retail investors the opportunity to buy its debt without any additional costs. It is also easier to access these new securities via ID Austria, where Austrian citizens can quickly set up an account with as little as €100 to buy these securities direct from the Treasury in less than 60 seconds.
Has retail demand peaked?
It is no secret that retail government bonds have become a hot commodity in Europe over the last few years in response to rising yields and less appealing options being offered to savers by banks.
The likes of Hungary, Italy, Portugal and Belgium all shifted a bulk of their funding to retail, with Belgium raising a record €21.9bn in a single retail bond transaction in 2023. Meanwhile, the UK Debt Management Office opened up access for retail investors to purchase gilts in the primary market earlier this year. But questions remain: is retail demand structural or opportunistic and has demand peaked and saturated already?
First, European sovereigns have already issued a lot to retail investors since interest rates and yields have steadily risen. Second, interest rates are believed to have peaked, with the European Central Bank expected to begin cutting rates from June 2024. The first signs of a drop in retail demand were seen early in May with the lacklustre sale of Italian retail government bonds compared to previous offerings.
However, the Austrian Treasury still feels confident it will still have success with its retail products. ‘Are we too late? We don’t think so,’ said Markus Stix, managing director of the Austrian Treasury. ‘Interest rates are still high and yields look attractive for retail, especially in the shorter tenors.’
The statistics back this up, with over 25,000 accounts and over €450m invested in Austria’s retail products as of 7 May, with around a quarter invested in the green products.
The Austrian Treasury had been wanting to return to the retail market for some time, with Austria’s minister of finance announcing in August 2023 the intention to develop a retail government bond programme. The sovereign was active in the retail space from 2002 up until 2020, when it had to abandon the programme in response to negative interest rates.
Austria has the highest share of eligible green expenditures of any sovereign green bond issuer in the world, with around 3% of its central government expenditures being green, representing around 1.1% of gross domestic product. In 2024, Austria is set to issue over €6bn of new green debt from its overall funding programme of €45bn-€50bn. This explains why the sovereign has been looking for new ways to fund its green programme. Do not be surprised if another novel product is added to its borrowing toolkit.
Burhan Khadbai is Head of Content, Sovereign Debt Institute, OMFIF.
