The government’s latest issue of defence bonds sold out in less than 24 hours following their launch on Thursday. Five Luxembourgish banks participated in the initiative, including Raiffeisen, which was issuing government bonds for the first time.
It was therefore a special moment, although not without anxiety, Georges Heinrich revealed. Despite expectations that demand for the bonds would be high, interest exceeded all estimates, leading to long waiting times and some frustration among customers in the queue.
Heinrich, a board member at Raiffeisen, attributed the enormous success of the bonds to several factors.
It has been a long time since the Luxembourg government put bonds on the market for private individuals. The state is a very safe issuer thanks to its triple A rating. The defence bonds themselves were also an interesting product for investors, thanks to the fixed rate of 2.25% and the tax-free returns.
Essentially, the state is offering investors a small tax gift in return for purchasing the bonds, costing the treasury around two million euros over three years. Heinrich said it was not up to him to assess this politically; but , he said there was certainly an element of “political marketing” around the bonds to create awareness among the general public. “It shows a new issue and a new challenge for politics and the general population, as defence is something that is relatively expensive but has immense value.”
The state will invest the money raised by the bonds on national defence and security projects. Heinrich said short-term debt was used to pre-finance the investment. Other budget adjustments could be made in future such as raising taxes or cutting spending, which Heinrich said he could not rule out.
The former treasury director said defence bonds were different from investing in shares of companies directly producing weapons and ammunition.
