DUTCH BONDS SEEN RALLYING FURTHER THIS WEEK
A further rally in Dutch bonds is
likely this week, due to a lower dollar and a slightly firmer
guilder against the mark attracting investors back to guilders
from marks, bond analysts said.
    The rally began last week, as proceeds from a sell-off in
dollar paper flooded into stronger currencies.
    The state tender of a new 6.25 pct eight-year bullet
indicates a week of active trading, dealers said.
    "We've not had trade like this since last year's boom around
the May elections," said Wim Moret of Banque Paribas.
    Moret was referring to the strong demand for Dutch bonds up
to and following last year's election of Prime Minister Ruud
Lubbers, whose centre-right coalition government was pledged to
a tight economic programme which bolstered the guilder.
    Last week, a wide sell-off of dollar and sterling boosted
demand for mark and guilder paper. Japanese corporate investors
were active buyers as the end of their accounting year, March
31, approached.
    Dutch prices and trade volume reached their highest level
this year. Total turnover topped four billion guilders, after
3.5 billion in the previous active trading week.
    While volume was considerable, prices rose more moderately.
The bourse bond index rose to 117.3 last Friday, a rise of 1.9
against its level two week's earlier.
    Foreign investors took the lion's share of trade last week,
but dealers noted considerable switching by domestic investors
as the yield differential between mark and guilder issues
enticed arbitrage activity.
    The dollar, mark and sterling started this week even lower,
heightening the chances of lively foreign demand for
guilder-denominated paper, dealers said.
    Today's declines could also be partly attributed to
investors selling in a bid to force down prices ahead of the
state loan tender tomorrow.
    "This is quite a normal situation. It's natural for
investors to want the highest yield for the lowest price. It
ensures firm demand at tomorrow's tender," one dealer said.
     The terms of the new issue are seen drawing firm domestic
and foreign demand, especially since the yield premium on Dutch
long maturities has grown to 0.45 pct over similar mark issues.
    The loan will be the fourth state issue for payment this
year, and also the fourth with a 6.25 pct coupon, since Dutch
interest rates have changed little this year.
    Bond analysts said that in view of the state's practice of
weighting the bulk of its capital market borrowing in the first
half of the year, it would be likely to raise at least four
billion guilders.
    Dutch merchant bank Pierson, Heldring en Pierson, said the
state has raised about 15.3 billion of its 1987 capital market
requirement of an estimated 32 billion guilders. Of this total,
7.3 billion was raised on the public capital market.
    Basing their judgement on today's market conditions,
dealers expected the loan to be priced at 101.00 pct for a
yield of 6.09 pct.
    "But everything hinges on tomorrow. If prices decline and
yields rise, it may be priced at a fraction below that," one
dealer said.
    On the domestic front, dealers say investors are amply
covered by a 4.2 billion guilder nine-day special advance by
the Dutch central bank, which has given the money market
sufficient liquidity until Friday, when the provision expires.
 REUTER
