In accordance with the International Monetary Fund's website (Source):
Rates of the ECB
- ESCB-Rate for main refinancing operations: Besides the summary provided below, for full details see the website of the ECB (http://www.ecb.int).
The main refinancing operations are the most important open market operations conducted by the ESCB, playing a pivotal role in pursuing the aims of steering interest rates, managing the liquidity situation in the market and signaling the stance of monetary policy. They also provide the bulk of refinancing the financial sector. The tool used is the reverse transaction, which refer to operations where the ESCB buys or sells eligible assets under repurchase agreements or conducts credit operations against eligible assets as collateral. The operational features of the main refinancing operations can be summarized as follows:
- They are liquidity-providing operations
- They are executed regularly each week
- They normally have a maturity of 2 weeks
- They are executed in a decentralized manner by the national central banks (i.e. for Belgium the NBB)
- They are executed through standard tenders
- All counterparts fulfilling the general eligibility criteria may submit tender bids for the main refinancing operations
- Both tier one and tier two assets are eligible as underlying assets for the main refinancing operations
The general eligibility criteria is constituted of the following points:
- Only institutions subjects to the ESCB's minimum reserve system according to the Article 19.1 of the ESCB/ECB statute are eligible to be counterparts
- Counterparts must be financially sound, and should be subject to at least one form of EU/EEA harmonized supervision by national authorities
- Counterparts must fulfil any operational criteria specified in the relevant contractual or regulatory arrangements applied by the respective national central bank (i.e. the NBB for Belgium) or the ECB
Tier one and tier two assets are defined as follows:
- Tier one consists of marketable debt instruments fulfilling uniform euro area-wide eligibility criteria specified by the ECB. The ECB establishes and maintains a list of tier one assets. This list is available to the public.
- Tier two consists of additional assets, marketable and nonmarketable, which are of particular importance for national financial markets and banking systems and for which eligibility criteria are established by the national central bank (i.e. the NBB for Belgium), subject to the minimum eligibility criteria established by the ECB. The specific eligibility criteria for tier two applied by the respective national central banks are subject to approval by the ECB. The national central banks establish and maintain national lists of eligible tier two assets; these lists are available to the public.
- General government borrowing rates
- Long term rate, secondary market, and 10 years benchmark linear bond. Besides the summary provided below, all details on the characteristics and functioning of the OLO are available at (http://treasury.fgov.be).
Linear bonds (OLOs) were created as a means of modernizing the management of the public debt and activating the market for public bonds of the Kingdom of Belgium. They are mainly designed for market professionals and investors with a substantial or diversified portfolio.
Basically they are medium- and long-term government loans (one to 30 years) issued by means of a price auction system. The main features of OLOs can be summarized as follows:
- They are issued by means of a price (percent) monthly auction.
- Linear bonds from different tranches of a single loan are identical and fungible (it's the so-called "assimilation"). Each of these tranches gives the issuer and the subscribers the same rights and obligation.
- All tranches of linear bonds of a single loan constitute a line: they have an identical nominal interest rate and mature on the same date.
- Linear bonds are dematerialized securities held in an accounting system run by the Clearing Center of the National Bank of Belgium to which CLEARSTREAM and EUROCLEAR have access.
- Payment of interest is exempted from Belgian withholding tax (except for resident private individuals).
- Holders of OLO: Linear bonds are a product mainly designed for professional investors either in Belgium or abroad. Since January 1994, resident private individuals subjected to the withholding tax may now hold OLO in book-entry accounts with the so-called "X-N"-accounts in the Clearing Center of the National Bank of Belgium.
- Auction, authorized bidders: Only Primary Dealers and Recognized Dealers are allowed to participate in auctions.
- Primary dealers: A body of Primary dealers in Government securities was established with a view to promoting the placement of OLO and Treasury Certificates on the primary market and to increasing their liquidity on the secondary market.
- Recognized dealers: A body of Recognized dealers in Belgian Government Securities is established. Their mission is to promote the placement of those securities in particular on certain markets or market segments.
- Three months treasury bills rate, secondary market. Besides the summary provided below, all details on the characteristics and functioning on Treasury Bills are available at (http://treasury.fgov.be).
Since the 29 January 1991, bills have been auctioned directly by the Belgian Treasury. The main features of these bills can be summarized as follows:
- The issue takes place on a weekly basis by means of a yield-based auction.
- The bills are dematerialized securities held in an accounting system run by the Clearing Center of the National Bank of Belgium to which CLEARSTREAM and EUROCLEAR have access. Primary and secondary market transactions are settled by this clearing system.
- Interest payments are exempted from Belgian withholding tax except for resident private individuals.
- Treasury bills have maturities of 3, 6 and 12 months and are auctioned once a week.
- Holders of Treasury bills: However since January 1994, resident private individuals submitted to the withholding tax may now hold Treasury bills in book-entry accounts with the so-called "X-N" clearing at the National Bank of Belgium.
- Auction, authorized bidders: Only primary dealers and recognized dealers are allowed to participate in auctions.
- Primary dealers: A body of primary dealers in government securities was established with a view to promoting the placement of OLO and Treasury bills on the primary market and to increasing their liquidity on the secondary market.
- Recognized dealers: A body of recognized dealers in Belgian Government Securities is established. Their mission is to promote the placement of those securities in particular on certain markets or market segments.
- Interest rates of financial institutions
- Interest rates on the interbank market: Euribor. Besides the summary provided below, full details can be consulted at (http://www.euribor.org).
EURIBOR (Euro Interbank Offered Rate) is the benchmark rate of the large euro market that emerged in 1999. It replaces the BIBOR (Brussels Interbank Offered Rate) in Belgium for maturities up to one year since the 1st January 1999. It is sponsored by the European Banking Federation which represents 2800 banks in the 15 members states of the European Union and the EMU division of the ACI, the Financial Market Association.
Euribor is the rate at which euro interbank term deposit are being offered within the EMU zone by one prime bank to another prime bank at 11.00 a.m. Brussels time.
The rates are communicated by a panel of 47 banks from the EMU, 4 non-EMU banks but members of the European Union and 6 international banks (outside the European Union but with important euro zone operations). Belgium has a panel of 3 banks.
The Euribor Code of Conduct, fixing the rules applicable to Euribor and the reference banks, was finalized and approved on 15 December 1997 by all the members of the European organizations having participated in its preparation. This code includes amongst other things:
- Criteria used to determine which banks may participate to the panel reference banks
- The obligations of the banks which contribute to the fixing of Euribor
- The tasks and the composition of the Steering Committee which is responsible for overseeing Euribor
- Criteria to qualify (treated by the steering committee):
- They must be active players in the euro money markets in the euro-zone or world-wide
- They must be able to handle good volumes in euro-interest rate related instruments, especially in the money market, even in turbulent market conditions
The following items of the bank reporting are considered for the evaluation of the previous criteria:
- On-balance sheet interbank items:
- Assets: Loans up to one year Money market paper Reverse repurchase agreements
- Liabilities: Deposits up to one year Money market paper Repurchase agreements
- Off-balance sheet items:
- Derivatives referring to a euribor underlying in euro
- Foreign exchange swaps (one leg in euro)
- Panel banks must be banks of first class credit standing.
- Banks wishing to apply for a seat on the panel must disclose all relevant information on the items considered for the selection.
Linear Bonds v. Government Bonds (Bonds as a whole)
- - The loans are government issues in euro at over one year on which a Royal Decree has been published in the Moniteur belge/ Belgisch Staatsblad. They therefore comprise a range of government-backed securities such as traditional loans (for private and institutional investors), loans intended for individuals only (such as State notes) and loans for institutional investors (e.g. OLOs). The samples do not include any loans on which the outstanding amount is less than a specified figure, or loans with special conditions attached.
- In regard to linear bonds (OLOs) which form a large, homogenous group (dematerialized securities, bonds capable of assimilation, system of tendering per tranche, etc.), this concerns on the one hand the average yields on OLOs with a residual term of between 1 and 12 years or more, and on the other hand the yields which are based on a fixed residual term (theoretical term of 1 to 30 years), in other words an interpolation in the yield curve (on the due date, calculated on the basis of certain instruments such as OLOs and 12-month treasury certificates).
Please refer to the summary methodology located on the International Monetary Fund's website.
Treasury yields can turn negative for certificates on the secondary market if their price is greater than the face value plus the interest payments that are remaining on the certificates.