In the hunt for yield, savers are rushing to eurozone government bonds

By Yoruk Bahceli

(Reuters) – Savers across the euro zone are rushing into sovereign debt to secure returns on their cash as banks struggle to keep up with soaring interest rates.

Leading the way is Italy, which sold a record €18.2bn retail bond this month to bolster its domestic debt stocks.

But that’s just the tip of the iceberg.

Portugal passed half of this year’s funds on to savers, Belgium expects retail bond sales to multiply ninefold and Spanish savers are piling into government bonds.

The level of demand comes as a surprise to debt managers and underscores savers’ rapid return to special debt programs, which they have shown little interest in for a decade.

Their return marks the latest structural change since high inflation last year prompted the European Central Bank to exit negative interest rates and steadily raise borrowing costs.

It’s a sign of confidence for issuers that new buyers are arriving as the ECB reduces its bond holdings.

“We thought that somehow these movements would lose momentum because savings are limited,” said Rui Amaral, board member of the Portuguese Debt Agency.

“Portugal is growing fast…but savings aren’t growing fast enough for us to (anticipate) sustained increases in this retail investment.”

Portugal has budgeted 3.5 billion euros for the full year and has already sold around 10 billion euros of new savings bonds to retail investors, Amaral said, up from 4.6 billion euros in 2022 when demand picked up again and just 500 million euros a year 2021

It has slashed sales of bonds and Treasury bills by €8.9 billion this year in favor of savings bonds, of which it is expected to have sold €12 billion by year-end – half of its €24.8 billion financing program for 2023.

“Banks, like everywhere else in Europe, are not increasing interest on deposits very quickly. So what you’re seeing is just an inflow from a lot of bank deposits being rolled over to (savings) certificates,” Amaral said.

That means around 15% of outstanding Portuguese government debt is now with retail investors, up from 10% in recent years.

Meanwhile, Belgium has issued government bonds worth 390 million euros to private investors this year, the highest amount since 2011.

The head of the Debt Agency, Maric Post, expects an issuance size of up to 1 billion euros by the end of the year, four times the 250 million euros planned for 2023 and an increase from the 109 million euros in 2022.

That would bring retail bond demand back to the levels of the early 2000s, Post said.


In Spain, individuals held 15% of all outstanding government bonds in March, an increase from almost zero since 2015 and the highest level on record, according to Treasury Department data from 2002.

But individuals still hold just 1% of the total €1.3 trillion in government debt, a spokesman said. According to Scope Ratings, Spain should use these investors to diversify its refinancing risk and contain borrowing costs.

Spanish banks pay the lowest interest rate on deposits of any major eurozone economy. One-year deposits yield 1.3%, compared to 3.7% for 12-month bills.

“Suddenly you realize that the money parked in deposits is giving you peanuts when you could be paying for something much juicier in government bonds,” said Jorge Garayo, rates strategist at Société Générale.

Special retail bonds, such as those sold in Portugal and Belgium, help non-professional investors avoid losses due to market volatility, offer tax advantages and are easier to buy.

In France, where millions of savers deposit money in segregated accounts at a regulated interest rate, demand is coming from the banks themselves, said Cyril Rousseau, head of the debt agency.

The institutions holding the deposits buy French inflation-linked bonds to generate the 3 percent interest rate they pay savers, which is partly linked to inflation, he said.

Domestic investors bought 63% of a €3 billion bond linked to French inflation sold this month, and banks’ asset and liability management departments bought 37%. said Rousseau.


ECB research shows that household ownership of government debt varies across the eurozone, ranging from virtually zero in countries like Germany to a high proportion in Portugal.

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

Italy launched retail bonds in 2012 amid the eurozone debt crisis, reducing dependence on international investors as borrowing costs soared.

In December 2011, savers also bought a record €5.7 billion in Belgian debt.

“We saw a very strong rebound in spreads after this issue,” Post recalled, citing the additional borrowing costs that Belgium pays to Germany.

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

(Reporting by Yoruk Bahceli; Editing by Dhara Ranasinghe and Hugh Lawson)

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