The Dutch Treasury plans to issue €5 billion of new bonds with maturities ranging from one to five years via a unique direct auction process as early as October, according to Eric Wilders, head of capital and money markets at the Dutch State Treasury Agency. Interestingly, the DSTA intends to widen price guidance as a means of achieving better distribution. It might also put restrictions on best bid orders. "Having the tighter end of guidance more expensive and the wider end cheaper will give our 13 primary dealers a chance to differentiate themselves in giving price advice," said Wilders. He noted that when the spread was only 2bps, price talk was homogenous.
He also indicated that allocation percentages would be increased on the coming deal. The DSTA's last direct auction, for €5.1 billion of new 10-year benchmark bonds in March, went out with tight price guidance and was heavily oversubscribed, with allocations scaled back as a result.
The Dutch direct auction issuance technique was introduced by the DSTA in 2003 and Wilders said it aims to involve end investors in primary issuance and bring transparency to the allocation process. All the primary dealers, rather than just the three or four in a syndicated sale, are involved on a price call and are informed simultaneously of the level of demand. The DSTA, which acts as sole bookrunner, is the only one with a full view of the composition of the book.
