European agencies prepare to navigate the end of PSPP

The European Central Bank’s Public Sector Purchase Programme for buying eurozone government and SSA bonds, which has crushed yields and spreads since its inception, is reaching its end. GlobalCapital asked some of the top names in the European state agency bond market what the withdrawal of ECB support means, not just for their euro curves, but their currency mix as a whole.

  • By Craig McGlashan
  • 19 Jun 2018
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Meanwhile, dollar funding in an environment of rising Federal Reserve target rates, as well as geopolitical instability, has moved to the short end, creating new challenges. Political tension between Italy’s new government and the European Union has sent a reminder that the eurozone’s problems are not yet completely resolved, despite the sovereign debt crisis having appeared to be firmly in the past.

The challenges — and, perhaps surprisingly, benefits — of the introduction of MiFID II were also discussed, as were the latest developments in the SRI bond market and the opportunities offered by sterling, niche currencies and privately placed medium term notes.

Agencies have enjoyed a very strong start to their funding in 2018, but as Italy, potential trade wars and more besides show, it is a wise borrower that makes sure it issues while conditions are benign.



Participants in the roundtable were:

Stefan Goebel, head of treasury, Rentenbank

Joakim Holmström, head of capital markets,
Municipality Finance

Tom Meuwissen, general manager, treasury,
Nederlandse Waterschapsbank

Frank Richter, head of investor relations, NRW.Bank

Rodrigo Robledo, head of capital markets, Instituto de Crédito Oficial 

Bart van Dooren, head of funding and investor relations, Bank Nederlandse Gemeenten

Petra Wehlert, head of capital markets, KfW

Craig McGlashan (moderator), GlobalCapital


GlobalCapital: What has been your funding activity this year in euros and dollars? How have your spreads performed?

SSA BNGBart van Dooren, Bank Nederlandse Gemeenten: Our programme this year is around €18bn. We’re at €9bn, 38% of which has been in euros and 43% in dollars. Those numbers are not different from previous years. I can’t see any changes coming.

Spreads have performed well this year. Our two year and three year dollar deals in February have tightened by 3bp, our seven year euros in April has widened by 2bp, so not too much. Everything, especially with dollars, has to do with where yields and spreads are. It’s all to do with the Federal Reserve’s potential hikes this year and what the market is forecasting.


Frank Richter, NRW.Bank: We had a good start to the year. We are looking for approximately €15bn this year and to date we’ve done €8.2bn. As in the past, it’s been two thirds in euros and one third in dollars plus some minor currencies like Aussie dollars and sterling. 

We’ve done one benchmark, a seven year euro three weeks ago. After the summer break we will have a deeper look into the dollar market. The outcome of a lot of meetings was that dollar investors are risk-averse, so they are looking for shorter maturities and also have a preference for floating rates. But things could change before we bring a benchmark.


Joakim Holmström, Municipality Finance: We’ve done €3.5bn out of €6.8bn, so we’re slightly ahead of the curve. February and March were extremely busy for us, while April and May were quieter, the latter because we were in blackout while updating our MTN programme. 

The majority of our funding has been done in public markets.

January was extremely busy — dollars, euros, Aussie dollars, Norwegian kroner and smaller markets. Our first large trade was a floater in dollars that came at Libor plus 5bp. It had a nice oversubscription and we managed to tighten pricing. 

We followed with a 15 year euro benchmark that was extremely successful. It’s a totally new part of the curve for us. The bond was several times subscribed, with books well over €2bn for our target €500m print. We tightened from flat area to 4bp through mid-swaps, which was the first time we’d ever moved so much. But that bond is now trading around minus 12bp on the mid. Although the primary pricing was tight it’s been performing extremely well in the secondary market. 

In March we did our first dollar benchmark of the year, a fixed rate five year. It was slightly different. We had a comfortable oversubscription of $1.4bn for a $1bn print, but for some reason the bookbuilding was slow. We were never in a position to tighten pricing. We started with IPTs of plus 16bp area and printed at plus 16bp. The slow build might have been slightly tight pricing or perhaps the five year maturity wasn’t the preference for investors, but we got a nice oversubscription that was lacking momentum. 

Overall, the start of the year has been extremely good. Only lately have we seen some volatility in euros. Spread development has been good and remains so and we’ve had super-tight pricing. In dollars there’s been more movement in asset swap valuations due to moves in swap spreads.


Petra Wehlert, KfW: We are €40bn through our €70bn-€75bn programme, which is nice progress. Nearly half of our funding this year has been in euros. We started the year with a strong 10 year euro, followed by fives and sevens. We were even able to issue a pair of €1bn trades at the short end. In January, yields moved higher and spreads wider. Looking now, those bonds have performed pretty well. It’s the strongest pillar we have.

Despite dollars having a smaller share this year, we were still able to print a 10 year benchmark. Looking back, it looks like even more of a success because now dollars is only interesting at the short end of the curve. We’ve also sold twos, threes and fives in dollars. 


Stefan Goebel, Rentenbank: We’ve sold two euro benchmarks and several taps in euros. We’ve raised 70% of our funding this year in euros, which is two thirds of our €11bn medium to long term target. We’ve done less in dollars than last year, when we ended with 57% in euros. We’re above the previous year’s euro average. But we’ve also issued good volumes in dollars, of €1.5bn-equivalent. But the average life has been fairly short. None have been longer than 3.5 years. We also did a $2bn deal that was a little shorter than two years, so doesn’t count towards the medium to long term total. 

It’s definitely been a better year for funding than expected. We’ve seen euro spreads widen a little bit and after the first couple of weeks in the year the euro/dollar basis tightened by a couple of basis points, which means that the all-in cost from foreign currency funding has increased by and large, but we got in the market very early in the year for very good volumes. Overall, we’ve felt there has been strong demand and borrowing costs have been quite benign. 


Rodrigo Robledo, Instituto de Crédito Oficial: We have borrowed €1.7bn in a funding programme of €4bn-€5bn. We saw that the lending activity has performed slower than expected in the first half of the year, so we expect to have the bulk of our issuance activity in the second half. 

In the dollar space, we have closed some private placements in the short part of the curve at very competitive levels, mainly driven by investors who have recently reopened credit lines for Ico and Spain. 


SSA NedTom Meuwissen, Nederlandse Waterschapsbank: Funding conditions this year have been quite good, considering that it seems the tapering of eurozone quantitative easing is around the corner. Everything remains quite stable, after a small widening in January in the euro market. It was a bit of deterioration but not too much. 

In dollars there was a deterioration in the basis swap which hit the short end. We’ve sold a floater and some short term taps in dollars, which was 40% of the €4.8bn we’ve raised so far from our €8bn-€10bn target.


GlobalCapital: How have swap spreads performed in both currencies?

Meuwissen, NWB: There has not been so much effect from the expected quantitative easing tapering on the long end in euros. On one hand that’s amazing, but on the other, perhaps tapering will not have a huge impact in the beginning. That’s what you see in the market as well. The ECB has quite a big share of all the SSAs altogether and it will definitely buy again at the redemption dates of the bonds it owns, so there will be no immediate change in the level of buying, I’d say. That’s also the market consensus and therefore you see spreads being quite stable.


van Dooren, BNG: We’ve seen a widening of swap spreads in the dollar market. We saw a moment when 10 year dollar benchmarks would have an absolute yield of above 3%, which is needed to tempt investors, and we felt this could be the opportunity for issuers to look at that tenor. We’ve seen only three in the SSA sector this year, in January from ADB and KfW, then in March from Alberta. But that moment seems to have passed.


Wehlert, KfW: Swap spreads have been more volatile in dollars than euros. It’s a political market in the US just now and that’s reflected in spreads and in the overall funding results.


GlobalCapital: How have expectations of the European Central Bank further cutting or ending its Public Sector Purchase Programme later this year affected your euro curves? 

Robledo, Ico: We’ve been benefiting from the PSPP policy, getting very competitive funding levels in our euro activity. We have not seen any impact on our secondary market, based on these expectations. 


Richter, NRW.Bank: We see a price effect. Our spreads have widened a little bit this year, in line with the general market. I could argue that we have outperformed KfW a little bit, which is probably because of the relative sizes of our programmes. We might not be at the end of the widening, but I’d say we’ve moved through most of it.


SSA KfWWehlert, KfW: There’s obviously a change in market sentiment because, given everything we see and hear, the expectation is that the programme will run out in September and not be extended. At the beginning of the year many market participants expected that there would be somehow an extension. So markets have got prepared for the end of the programme. We’ll have a clearer picture from the ECB meetings. But it really looks like it’s coming and we have to be prepared.

Having said that, spreads are performing. That’s a bit of a surprise because at the beginning of the year we saw a different expectation, with wider spreads. But demand is really strong and when we travel to see investors they don’t have many criticisms about Europe, so the spread performance might be because of that overall picture. 


Goebel, Rentenbank: We’ve seen huge swings in 10 year yields, for example, sometimes driven by QE expectations, then disappointment. Then we had Italy’s political problems and 10 year swap rates went down by 25bp. 

There are still a lot of events that can move yields in one direction or the other, but by and large we’re still on a trend of rising yields and slowly rising credit spreads, for top quality names as well. But we’ve seen that credit spreads can tighten quickly again for safe haven names if you have events like the constitutional crisis in Italy. There’s a trend and it seems it will continue, but there’s always potential for volatility due to unexpected events.


Holmström, MuniFin: With interest rates going up slightly to reflect the improved economic fundamentals in Europe we’ve seen more issuance in the shorter tenors, from three to five years. But I hear from dealers that these trades have not been the easiest to sell.

In general, there’s a lot of euro liquidity out there. Investor interest remains strong across the curve. One example was our 15 year benchmark, which was several times subscribed, despite investors being aware of the PSPP continuity question.

We’ve seen a lot of demand for long dated euros, both from the German insurance community, but also from some selected Asian buyers as well. I guess the latter is driven by basis swaps.


GlobalCapital: Has the expectation of PSPP ending affected investor distribution in any way? Is there less fast money?

Richter, NRW.Bank: There is still demand for longer tenors. Due to the political uncertainty in Italy there was a period in the last two weeks when investors moved a bit to shorter maturities, but then there were some successful long end placements, including from our guarantor.


Holmström, MuniFin: We’re not the most frequent issuer of euros, we do one or two trades a year, so it’s a bit difficult to see a pattern. We never really see an element of fast money in benchmark order books — they’ve been heavily influenced by central bank and bank treasury interest, with some pension and insurance money involved. We do see the odd bank trading order but with the constant oversubscription of our trades these accounts are rarely allocated many bonds. 


Robledo, Ico: During the last few years, due to the strong economic figures of the Spanish economy, we have seen the most conservative investor base, the central banks, reopening lines for Ico. Currently most of them have lines for Ico. With regard to fast money investors, we are not the type of issuer they prefer, therefore we have not seen any change in their buying appetite. 


Meuwissen, NWB: There has not been much change to euro distribution. There’s still huge interest in long term euros, but that’s been quite stable. 


Wehlert, KfW: PSPP obviously has the effect that investors buy more at the longer end of the curve. Given the increase in yields at the beginning of the year, investors are returning to the short end — especially central banks, which we saw on our latest euro bond. Overall, higher and positive interest rates are important for international investors so we see them coming back. 

However, we have to differentiate. The market had been very much dominated by PSPP and redemptions, so in general it wasn’t as well supported in April. 

Since May we’ve had the Italian political developments, which have had more of an effect on markets than PSPP. PSPP is not deemed as important as it was at the start of the year. That could be why KfW has been able to perform better, which has not been the case for all borrowers.


GlobalCapital: Is there a higher or lower chance that PSPP will run into 2019 than there was at the start of the year?

Robledo, Ico: I am in two minds. The recent political news in Italy could delay some of the announcements from the ECB about PSPP, but at the same time, inflation figures support the end of this policy. 


Goebel, Rentenbank: I find it difficult to see how the communication we’ve got so far from the ECB should change in a way that it gets extended. 

van Dooren, BNG: Fingers crossed we’ll see higher yields in the eurozone, but then all eyes are on inflation. Is inflation picking up? Not really to where everyone expected, given the very positive economic tone in Europe and especially in the Netherlands.

This year, Dutch GDP growth is expected to be 3.2%, so we’re doing quite well. But if the ECB sticks to its roadmap regarding PSPP then PSPP will finish by the end of the year. House and oil prices are going up, which really drive inflation, but other signals for getting higher CPIs are not really there.

Am I concerned about the economic situation in Europe? To a certain extent. Not this year or next year, but thereafter. There are a number of geopolitical risks around the corner. First of all Italy, but I think that will be sorted out. The ECB still plays an important role in Italy. It makes up 20% of the ECB’s balance sheet, which is quite a large number. But we have the potential trade war with the US on steel and aluminium, while North Korea is still dangerous.


Meuwissen, NWB: I haven’t seen a change in tapering expectations. It’ll tail off in three months, which is the general expectation. 


SSA NRWRichter, NRW.Bank: We expect the QE policy will come to an end. How gradual the phasing out period is will depend a little bit on the overall picture. If we look only at the economic figures, the eurozone is in good shape, every economy is growing and inflation is coming closer to the ECB target. 

Based on that I would assume the ECB will phase out the monthly buying by year end to zero. I don’t expect an immediate reduction to zero. They might take a step in between, reflecting that there is a shaky situation in the capital markets due to Italy’s governmental and political issues. They’ll consider this and, on the other hand, they’re not feeling much pressure to act quickly. 

I’d say at the end of this year there will be zero net buying, but they’ll still have to make reinvestments of maturing bonds and coupons. They will still be in the market but not increasing the balance sheet further. There will still be underlying support in the capital markets from the ECB.


GlobalCapital: Has the short end of the euro curve returned as a viable funding option? Is it worth it from a cost perspective versus dollars?

van Dooren, BNG: We’ll see higher rates in the US by the end of the year, that’s for sure. I find it very difficult to see where we will be in euros. Rates could go higher and the best evidence for that is that we still see appetite from investors in the longer end, mainly investors with long dated liabilities like pension funds and German lifers looking for longer dated investments.

But at the short end, for us as a euro borrower five years was the pivot point, where in March or April on an after swaps basis it was almost equal issuing five year dollars or euros — but given the negative yields in five year euros it was nearly impossible. Nowadays there’s a pickup in euros — it’s 10bp cheaper versus dollars. We can also now offer a positive yield. It’s still mid-swaps minus 16bp-18bp, so it’s not back to normal, but there is a trend in the SSA market where you’ll see more short end euro issuance. You won’t see a lot of three year paper, but five years is definitely an option.


Meuwissen, NWB: The five year part of the euro curve got back into play only because dollars worsened, it’s not so much that euros got more attractive. We’ve stayed away so far, but in relative terms euros has got more attractive. 


Richter, NRW.Bank: We’re in general interested in the mid part of the curve as our ALM requires a duration of four and a half to five years on the liability side. We’re happy to be active in the five year space, and we’ve done it more in dollars. But it looks like the shift in yields to more positive territory means we could do this in euros too.


Wehlert, KfW: We hadn’t issued short euros for a while because the short dollar market was so strong and rates were deeply negative in short euros. We’ve not done large volumes in the short end this year but from time to time we’ve printed €1bn. 

If it develops further in this direction then it might be that the short euro market opens up again, which is very good for us. Three to five year euro bonds used to be a very useful instrument. 


Robledo, Ico: For Ico this has always been a viable option. We are an issuer that traditionally focuses on the euro short and medium part of the curve. We closed many private placements in short maturities last year and we have seen opportunities to repeat the same experience this year. For liquidity reasons we have not been very active in the first half and we expect this situation to change after the summer break. 


GlobalCapital: Are euro average maturities starting to come back down from their highs?

Goebel, Rentenbank: Average maturities have been fairly stable. We’ve seen very good demand for longer dated transactions. We haven’t done any new issues this year but we’ve tapped a number of longer dated euro transactions, for example our 2030 and 2036 maturities, all at very good levels.

Whenever yields go up there is a strong appetite from investors to buy into better yields and we’ve seen positive effects from that. In the secondary market there are hardly any bonds available, due to PSPP activity, so whenever there is incremental demand in good size investors will typically try to get that through the primary markets rather than secondary — at least for our bonds. The secondary turnover in our bonds is there, but if you want €50m at a sensible spread you’ll probably go for primary markets.


Wehlert, KfW: Some investors are moving to the short end of the euro curve but there’s ongoing demand at the long end. We did a 15 year recently that was quite successful and a number of investors placed quite large orders. That demand might hold for some time yet because rates are still low. We have a target average duration so will pick the products we need.


GlobalCapital: How has the flattening of the dollar curve affected dollar demand? Has it further concentrated interest to the short end of the curve?

Holmström, MuniFin: The curve is extremely flat and the dollar Libor/OIS [overnight indexed swap] spread development has also been of concern. When looking at three month Libor versus the 30 year swap rate there’s not much curve to begin with. That’s also, if not directly, influenced the cross-currency basis, which is not helpful from our perspective because we swap into euros. This impacts our all-in funding cost.

The renewed volatility from Italy reversed the movement in the cross-currency swap but before that we started being in territory where dollars didn’t offer any arb versus euros. 

Europe is improving but still lagging the US, which is a completely different situation. There are inflation pressures and unemployment is more or less non-existent. 

There’s no big pickup for investors going out along the dollar curve, so the bulk of demand has been at two to three. We’ve also had increased interest in floating rate notes — we’ve done one new issue and tapped another one. Our dealers report a constant reverse interest in floating rate notes.


Wehlert, KfW: It was a challenge to find a good window to sell our 10 year dollar benchmark. We printed an oversubscribed $3bn deal — which is large for a 10 year — so it was an achievement to do that with a flat dollar curve. There are a lot of criteria involved in this — rates, swap spreads, basis swaps, comparable strength of the euro market and so on. 

We had very good demand of nearly $6bn for a $4bn two year dollar bond we have just issued that has performed quite well. So for European issuers it looks like it will be more interesting to issue at the short end in dollars, unless swap spreads widen or the basis swap goes more negative. The dollar markets have also been more volatile than euros, generally speaking, which is another factor.


Goebel, Rentenbank: All our dollar funding has been in short maturities and also a decent share has been in floating rate format. That’s due to demand, because the curve is so flat. However, with the exception of Australian dollars, euros are simply offering better funding costs in longer maturities.


van Dooren, BNG: When we were visiting Japanese investors — the main driver of 10 year issuance — a number of them said they were moving from dollars to euros, given the cost of hedging. It’s too expensive looking at dollars versus euros, so that could lead to less 10 year issuance, because of not the absolute yield but the lack of demand from foreign investors.


Richter, NRW.Bank: Investors have clearly moved to the shorter end and FRNs in dollars, but not in euros. The flatness of the dollar curve is keeping investors short, which gives the advantage to shorter maturities.


Meuwissen, NWB: There was a moment this year when the basis swap meant that longer term dollars were almost as attractive as euros. We didn’t do anything on that — it was quite a brief period.


Robledo, Ico: The fact that Ico still pays a wider spread versus swaps in comparison with most of the traditional SSA dollar players has helped our activity in dollars. We have closed some private placements in the short part of the curve, mainly driven by central banks. In some cases these have been investors we have not seen buying our credit for many years. These trades have given us very good levels in euros after the currency swap. 


GlobalCapital: MiFID II was more likely to cause issues for other sectors, but has anything come up or has it all been plain sailing? 

Richter, NRW.Bank: There were a lot of uncertainty, discussions and rumours at the beginning of the year, but we were absolutely happy with the consequences. We now have to agree upfront with leads on how to structure the allocation process on a transaction. Once you’ve done that it’s very easy to make the allocation once the order book is bid and the bond is priced. 

We feel it’s an advantage for us. It saves us a lot of time and we didn’t have to change much of our allocation policy. It was always fair, now it’s a little more formalised. Regulation is not always bad. It’s easy to address a target group — is it professional investors, or retail?


SSA MuniFinHolmström, MuniFin: We’re considered an investment firm from a MiFID II context so we’ve been impacted. A lot of the changes come on the customer-facing side. In funding, we need certain trades to be reported, which causes administrative issues, plus defining target markets and fee disclosures also need to be taken into consideration. 

There have been no real big challenges. We just needed to update our internal practices to meet these new requirements. 

Most of the trades we report have to be reported only at T+1, but there are some that need to be reported within 15 minutes of their execution. That creates more hassle around the execution process.


Goebel, Rentenbank: There were some documentation issues. We simply had to be in close dialogue with our dealer group to find out how they position themselves and make sure they understand what our preferred distribution channels would be. But as our bonds are generally eligible for all markets, including retail, it’s been fairly benign for us. There was some work to be done, we needed to get some clarification, but we are a fairly easy client when it comes to distributing bonds. 


Wehlert, KfW: There was a lot of preparation work at the beginning of the year and a lot of uncertainty. On the secondary market side especially, it took some time for market participants to get prepared. But it’s turned out to be a very smooth process. In primary markets, we’ve always been in line with the new rules anyway, there’s just a little bit more reporting to be done. 

I can’t see any negative impact it’s had. That was expected from many sides, but it seems to be very well established now. It’s more transparency and more efficiency. In today’s world there’s a lot of digitalisation and so on anyway, so it was probably a smoother process than many banks expected.


van Dooren, BNG: We thought the initial impact was going to be big, then later we figured out it was not so bad. We’re still in discussions with banks that are not systematic internalisers and don’t do the reporting, but that’s a matter of time because all banks and market participants realise it’s a thing you can’t avoid. 

We’ll live with MiFID and our focus will be on institutional investors. As retail investors mainly invest in our bonds through funds of banks or asset managers, the direct participation of retail was already down to almost zero. 

What’s more complicated, especially for smaller organisations like us, is to clear swaps within the 30 minute timeframe because it’s really an issue to get that done and confirmed by your counterparty, back office and so on. At the moment we have to clear swaps in euros, which is not a very light process. But so far, so good.


Robledo, Ico: It is true that at the beginning there was some noise on the impact of MiFID II in matters like allocations policy, disclosure of fees and setting a target market. After some months we have not seen any impact at all, especially if you compare that with the changes produced before with the implementation of the EU Market Abuse Regulation in issues like market sounding. 


Meuwissen, NWB: MiFID II has an effect, especially for banks, but not so much for us.


GlobalCapital: Aside from euros and dollars, what other sectors have provided opportunities this year? Sterling, MTNs, niche currencies, or others?

Wehlert, KfW: Sterling is still our number three currency. We’ve done nearly 10 transactions this year, and we issued a £1bn sterling bond — the largest we’ve ever done in one shot. Despite all the Brexit discussions, investors — UK and international — are quite keen to buy. 

We’ve issued in 12 currencies this year, more than last year’s 10. That includes Australian dollars, plus we issued a green bond in Swedish kronor. Overall it’s much more diversified than last year, which is definitely positive.

It’s all about picking the windows where the deals work for us. It’s not necessarily an either/or versus our core currencies — there are different investors involved.


SSA RentenbankGoebel, Rentenbank: Aussie dollars is our number three issuing currency year to date, with a share of about 5%. Euros took 70%, dollars 21%. That doesn’t leave a lot on the table. We’ve done some smaller taps in sterling and a new issue in New Zealand dollars, plus some bits and pieces in Swedish kronor, Norwegian kroner and Hong Kong dollars. But that’s really been it and almost all of it has been plain vanilla. 

We’ve never been a very prolific issuer in structured products but over recent years we’ve seen a constant trend towards plain vanilla instruments and that’s what we’ve seen again year to date. 

We could do more in niche currencies once PSPP ends. It’s all about relative pricing. The cost-effectiveness of non-euro currencies has suffered from the tightening of basis swaps rather than widening credit spreads. If euro funding was to become more expensive versus Euribor then, all other things being equal, other currencies should become more attractive on a relative basis, and if there’s solid demand from investors the share could go up. 

Our record share in foreign currencies was 80%, in both 2005 and 2008. This year we’re at 30%, so there’s room for a higher share. As recently as 2015, euros only accounted for 22% and dollars was 50%. In 2016 dollars was again 50% but the euro share went up to 32% because our Aussie dollar issuance was much smaller. Over a longer horizon we’ve issued less in euros than in the other currencies combined. That’s a pattern which may well return if demand from the PSPP stops.


Meuwissen, NWB: We’ve only really done Kangaroos, which was 10% of our funding so far this year. We’ve also done Swedish kronor. It’s all down to the basis swaps. 


van Dooren, BNG: We’ve been especially busy in sterling and Aussie dollars. That’s not different from previous years — with one exception. We’re one of the only issuers, since January this year, to have an outstanding July 2028 in Aussie where the amount exceeds A$1bn. We’re expecting it to attract more investors. 

But demand from Japanese investors especially is driven by the currency and the hedging cost. Given the recent volatility, I haven’t seen any issuance in the Kangaroo market. But it’ll still be attractive, not only because of the demand from the Japanese asset managers, but also increased demand from central banks with foreign reserves in Aussie dollars. There’s also a bit more of a domestic bid for Kangaroos. 

There are also interesting developments in Swedish kronor. There’s not a lot of issuance, but demand is coming from Asia, Japan, and Korea lifers. Some are swapping back to won or yen. Some are not touching it because of the illiquidity of the swap market. But it’s definitely an interesting currency where we hopefully see more demand coming from Asia.

Holmström, MuniFin: We did a December 2022 sterling trade this year that was very successful. We increased it from the initial £250m to £350m because of strong demand and moved pricing from 35bp area over Gilts to 33bp.

Despite volatility in Turkish lira — or perhaps because of it — we’ve recently seen some interest in Turkish lira. We also have the traditional equity or FX-linked products that are solely placed with Japanese investors.

One new trade we haven’t done in the past is a Fed Funds FRN. We sold that to a US-based investor earlier this year. 


Richter, NRW.Bank: We’ve not done much in MTNs, around €400m-equivalent or 5% of the funding volume. Our focus was on sterling, but we have also had two nice taps of our Aussie dollar line. We’ve tried to get a little bit deeper into that market, especially to address Japanese life insurance companies looking for long dated Aussie dollar bonds. 

We’re monitoring every market very, very closely. We have to decide whether to put the emphasis more on the euro or dollar market, but of course we have to be present in both. Even if the prices are not so attractive, we have to show access and have a permanent presence. 


GlobalCapital: How has the market taken the recent Italian political developments? Is there a worry of contagion into eurozone assets more generally?

Robledo, Ico: The fundamentals of the Spanish economy are very strong and the country continues to grow at levels around 3% and is maintaining strong employment creation, so we do not foresee any contagion to our credit.


Goebel, Rentenbank: Investors aren’t too worried. This was in the set of potential global crises from trade wars to the US administration, to Iran, to North Korea. Italy has been a wake-up call that not all is good in the eurozone, but still it has to be put into perspective. Europe is generally on a very good growth path and it’s also a place of relative stability within an unpredictable world.

Therefore I believe investors are still looking positively at Europe and so there’s no reason from my side to complain if there are shock events from inside Europe. When they come there is a flight to quality and that positively impacts Rentenbank. 

One way or the other we’ll see good demand from our investor base, but I hope and trust Europe will continue to be on a good growth trend and be a place of relative stability in the world.


Richter, NRW.Bank: In Europe sometimes a problem occurs in one of the member countries. It is not long ago Germany was on the spot when Angela Merkel had difficulties forming a government. That is what we have to live with and what we’ve lived with for 70 years. 

I’ve no doubt Italy is proud to be a founding member of the EU in 1957 and it’ll stick to the EU and the euro. Of course the new government, especially if it’s populist, triggers a lot of questions, so we have to show we’re committed to Europe and in the frame of these treaties we have to discuss everything. 

The eurozone will develop further. We’ve had some proposals from Emmanuel Macron and a positive reaction from Merkel, so there’s something moving. If you’re close to the actual discussions you’re sometimes afraid or upset, but if you take a step back and look at the broader development over time, you see there’s good movement in the eurozone and this will continue. 

It’s much too early to make any comments on the Italian government, but clearly there are rules in place they have to stick to. It will maybe take six to 12 months but in the end we’ll see that Italy will stay in the Union and the eurozone and will be constructive in developing the eurozone further in the line of the Merkel/Macron ideas. 


van Dooren, BNG: Italy’s debt to GDP ratio of 132% is an issue, and we’ve seen Moody’s put it on review for downgrade and its yields rise. If they get too high it’ll be impossible for Italy to repay its debt and with 20% of the ECB’s balance sheet being Italian debt it’ll be difficult for the ECB to support Italy or the Italian banks. Hopefully they’ll get stability back into the political situation.


Holmström, MuniFin: We talked about PSPP running on and while the ECB is looking at inflation and GDP growth, with one eye it also has to look at the political landscape. Potential trade wars are one factor, while Italy and Spain have shown that the situation in Europe is still fragile. 

Looking at how markets reacted to the Italian news, there’s a chance for a renewed eurozone sovereign debt crisis. If this situation is unresolved, the ECB might be cautious when deciding the future of PSPP. But if these political risks are manageable and economic fundamentals remain very good, eventually the ECB has to start exiting and then that leads to future challenges when it comes to spread development.

At the peak of the Italy volatility our asset team made a strange observation. We’re not invested in either, but the two year Italy government bond was trading at swaps plus 175bp and two year Italian covered bonds were at plus 18bp. So clearly the spread in Italian government bonds consists of two components. One is the credit risk, which should be the same as the covered bond because it’s the underlying Italian economy that covers both. But the covered bond is lacking the political risk that can be priced into the government bond. 


Meuwissen, NWB: There could definitely be consequences from the Italy situation but we have to wait and see. 


Wehlert, KfW: Italy is a major part of Europe, but markets are quite relaxed about the developments. We’ve just seen investors in the US and will be in Asia soon. They have critical questions but have full confidence in Europe overall. 

Even in those times that BTP spreads went wider, KfW and OAT spreads and so on were quite stable. The only effect was that Bund swap spreads widened, which makes our bonds even more interesting versus Germany. 

It’s hard to say whether Italy is an isolated problem or not but investors haven’t been panicking.


GlobalCapital: Are investors still buying into the Europe growth story? How has recent data affected that view?

SSA IcoRobledo, Ico: We do think they are. We have recently been in Asia meeting investors and we were pleasantly surprised with their positive feedback and their interest in adding Spanish public risk to their portfolios. On the Spanish side as I said before the fundamentals are very strong and this has been reinforced with the latest upgrades from the rating agencies. 


Meuwissen, NWB: There is plenty of money around that has to be invested. I don’t know if it’s too much to do with the growth story. 


GlobalCapital: How has the socially responsible investment bond market performed this year?
Have you, or are you planning to, bring any new products or innovations in that sector?

Holmström, MuniFin: We’ve sold one green bond every year, which is our optimal situation. We’re building up the asset side, acquiring more of these projects. 

We started with a slightly different approach from our peers. We selected no old projects, only new ones that have been disbursed since the launch of the green programme. There’s a nice pipeline so there might be room to do something in the green space later in the year — it depends how much green lending we manage to do. If we don’t do something we’ll wait until we have enough assets and look to finance them with a green bond issue at a later stage. We don’t want to prefund. 

We’re looking into the Social Bond Principles. We’re still far away from doing something but we’re analysing the potential of this because the eligible assets are something we would have plenty of. The framework is yet to be put in place but it would be linked to the UN Sustainable Development Goals. 

Potential projects could include social housing, education and healthcare. But it’s still under development and under observation. That could be something for 2019 and onwards.


Meuwissen, NWB: We’ve sold affordable housing bonds and there will be more this year. There will also be a water bond. This is a fairly important market for us. Last year SRI bonds contributed more than 25% of our total funding, and this year it will probably be around 20% at least.


van Dooren, BNG: We haven’t seen a lot of issuance in general in the SRI market. There are still a lot of things going on in changing the SDGs, so there’s a lack of paper for the green investors. Like from ourselves, most of the issuance you will see in the second half of the year. 

Our SRI bonds for housing associations are based on best of class criteria published at the end of the third quarter in the Netherlands. So we’re only able to do our social bond in the fourth quarter. But it’s still on our list and we have a commitment to issue at least one SRI bond linked to the best in class Dutch municipalities and one social bond linked to the best in class Dutch housing associations. 

We are working on issuing SRI bonds directly related to projects but the projects are relatively small in the Netherlands, which makes it difficult for us to do more project-related SRI transactions. But two weeks ago we issued our first SRI private placement, an A$36m clip linked to a renewable energy project, specifically wind energy. We had a Japanese investor on board. We’re working to come to a critical mass if we have the possibility to bundle more projects and do a larger private placement or a smaller public transaction. It’s a work in progress.


Wehlert, KfW: We’ve issued some green bonds in Swedish kronor this year. The green bond market in general has performed quite well because if you look at secondaries, our €2bn green bond from last year is 4bp tighter than our conventional curve and we still see green bonds being oversubscribed. 

We haven’t issued a liquid euro or dollar green bond yet in 2018, but that’s more for the second half of the year. We’ll issue green bonds regularly to our investor base. 

The green bond market is still growing, although in SRI generally the growth is a bit more in the sustainable bond field. 


Richter, NRW.Bank: We are busy in SRI. We just started the preparations for an upcoming green bond transaction, for which we’ll be meeting investors soon.

Our strategy is to do green bonds only in euros and build a euro curve. This upcoming bond will be our sixth transaction since 2016, so we have quite a nice track record already. The tenor will depend on investor demand but anything is possible between five and 10 years. In theory it could be shorter but that doesn’t meet our interest.

We’ve finalised our internal work on the bond, the second party opinion is available, we’ve published our reporting on the 2017 transaction and we have finished the pool for the upcoming year. So we’re available to issue, it just depends on variables. But, if things work well, we’ll be in before the summer break. 


Robledo, Ico: We have experienced the continuation of the expansion of the SRI market. On the green side we have seen new governments coming, like Belgium, and on the social side we have seen new players like Cassa Depositi e Prestiti and Danone.

On Ico’s side we are very committed to the SRI market, especially with the social bonds. We are one of the largest issuers of social bonds, with more than €2bn printed. We are committed to issuing at least one per year. Last year we printed two, one in euros and one in Swedish kronor, which was the first social bond in this currency.

We are an active player of ICMA’s social bond working group and we played a key role in the release of the Social Bond Principles last year.

We have made public our reporting methodology, showing commitment to transparency and to helping other market participants who can use this as a reference.

We organised our Fourth Sustainable Bond Forum in Madrid this year, with more than 150 delegates, and we have positioned this event as a reference in the SRI space. 


  • By Craig McGlashan
  • 19 Jun 2018

European Sovereign Bonds

Rank Lead Manager Amount €m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 16,032.07 25 9.75%
2 Barclays 15,041.98 19 9.15%
3 Citi 13,795.56 24 8.39%
4 HSBC 12,009.31 18 7.30%
5 BNP Paribas 10,802.75 16 6.57%

Dollar Denominated SSA (Excl US Agency)

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 41,726.66 111 12.22%
2 JPMorgan 29,288.84 79 8.57%
3 HSBC 29,000.04 74 8.49%
4 Bank of America Merrill Lynch 27,450.34 80 8.04%
5 Goldman Sachs 24,685.10 55 7.23%

Bookrunners of Euro Denominated SSA (Excl US Agency)

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 35,645.82 96 8.02%
2 HSBC 32,437.47 116 7.30%
3 Barclays 31,737.51 60 7.14%
4 UniCredit 30,989.16 83 6.97%
5 BNP Paribas 27,189.65 67 6.11%

Bookrunners of Global SSA (Excl US Agency)

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 77,915.32 278 6.83%
2 JPMorgan 77,428.97 443 6.78%
3 HSBC 73,010.93 287 6.40%
4 Barclays 59,775.59 229 5.24%
5 Deutsche Bank 52,560.34 166 4.60%