The nation now is planning to sell all $12 billion of the bonds, many of which are tied to borrowers who were deemed more risky after failing to document their incomes or taking on mortgages with growing balance. The market value of the bonds is about 71% of the face amount, ING, the Netherlands’ biggest financial-services company, said last week. The government may see a gain of almost 800 million euros or more than $1 billion, Finance Minister Jeroen Dijsselbloem told Parliament.
The payoff for the Netherlands and the consequences for the $800 billion market for U.S. mortgage bonds without government backing will depend on how well it can unwind the bet with the help of BlackRock Inc. The sales, which require European Union approval, should be finished within the next year. Risks over that period include the forecasted reduction of the U.S. Federal Reserve’s unprecedented economic stimulus, potential continued sales of the debt by Fannie Mae and Freddie Mac, and the possibility of more budget battles by U.S. lawmakers like the one that roiled global markets last month.
“Timing is everything,” said Michael Canter, head of securitized assets at AllianceBernstein LP, which oversees more than $250 billion in fixed-income investments. “If they try to sell when there’s not a lot of liquidity out there, it could be a really bad thing. If the markets are in a good place, it definitely could be absorbed without a hitch.”