Dutch institutional investors not expanding investments in high-risk bonds

Written by Adam Cadle

29/11/2023

Dutch institutional investors kept their investments in high-risk bonds roughly the same over the past 12 months, a break from previous years, according to De Nederlandsche Bank.

Since 2019, large investors had expanded their exposure to high-yield bonds. With bond yields particularly low in recent years, institutional investors found it worthwhile to allocate more of their assets to high-yield bonds. However, since the recent interest rate hikes, they are also receiving higher interest rates on the less risky “investment grade” bonds.

As at 30 September 2023, Dutch institutional investors held €68bn in high-yield bonds, representing some 10% of their aggregate bond portfolio. A year ago, this figure stood at €71bn. The decrease is attributed to price and exchange rate movements, given that purchases and sales were almost equal.

Of the Dutch investment fund’s aggregate bond portfolio, just over 16% (€14bn) consists of high-yield bonds. For pension funds, this percentage stands at over 10% (€51bn), and for insurers at just under 3% (€3bn).

Of the high-yield bonds in the portfolios of Dutch institutional investors, two-thirds (€46bn) were issued by firms.

Within this category, US firms are particularly popular among Dutch investors. As at 30 September, Dutch institutional investors had allocated almost €21bn to bonds issued by US firms such as Ford, American Airlines, KFC and Uber. European firms outside the Netherlands ranked second at €12bn. Finally, Dutch high-yield corporate bonds accounted for just over €3bn.

Institutional investors also hold €22bn in high-yield government bonds, investing mainly in the BRICS countries Brazil and South Africa, which account for €11bn. The government bonds of the BRICS countries India and China are considered investment-grade.

As of 30 September 2022, 15% (€10bn) of high-yield bonds held by institutional investors were upgraded to a higher credit rating. In contrast, 11% (€8bn) of high-yield bonds were downgraded.

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