2- & 5-Year DSLs Widen On Fiscal Questions Stemming From Election Result

Partial Dutch national election results indicate that the right-wing PVV has secured the most seats in parliament, outperforming an already favourable turn in the pre-election polls (see our political risk team's wrap up here), sending ‘shockwaves’ through both the Netherlands and wider Europe in the process.

• Rabobank highlight that “the shift towards the populist parties illustrates the Dutch discontent with traditional politicians and the accountability of the government.”
• The post-election feed through into DSLs has been most pronounced in the front end of the curve, at least from a cross-market perspective, with 2s and 5s widening vs. core and semi-core counterparts. There has also been some widening against peripheral EGBs in that zone.
• Longer-dated spreads are closer to unchanged, with a modest widening bias observed vs. Bunds (as is the case for most EGBs today).
• Outright, DSL yields are 1-3bp firmer on the day.
• While coalition negotiations are expected to be a drawn-out affair, the combination of the PVV’s euro-scepticism (which could be watered down in the coalition formation talks) and, more notably, its desire for higher social spending (with details light on the funding of such a fiscal stance), is weighing on the shorter end of the DSL curve/impacting spreads vs. EGBs.