Setting a new benchmark in the global SSA market
When TD Securities was appointed as the 22nd primary dealer in the US in February 2014, it represented an important landmark in the evolution of TD Securities’ global capital market franchise, underscoring its long-term commitment to the world’s largest and most liquid fixed income market. John Moore, head of US and international fixed income, says that the firm’s increasingly prominent position in the US capital market builds on the fast-growing footprint of its parent, Toronto-Dominion Bank (TD Bank) across the US banking sector.
Moore explains that the acquisition of Banknorth in 2007 and Commerce Bancorp in 2008 created a platform for TD Bank’s growth in the US after the global financial crisis. TD is now a top 10 player in the retail banking market in the US, where it has more branches than it does in Canada. “Building on the success of our retail and commercial bank in the US, in late 2009 and early 2010 we started to develop our US dollar activities from scratch in government, agency and swap products,” says Moore. Today, TD Securities is one of the fastest growing players in the US capital market, where it is aiming to double the size of its business over the next three to four years.
TD Securities’ thriving franchise in the US capital market complements its long-established presence in the broader global fixed income market, where its success in the market for non-core dollars has been recognised for many years by GlobalCapital and others.
Before becoming global head of foreign exchange and metals in 2014, Michael Twaits led TD Securities fixed income sales and trading across Europe and Asia Pacific. He puts the growth of TD Securities’ global fixed income into its historical context, explaining that it traces its origins back to the mid-1990s when European private investors were expanding their horizons in their search for yield. “At the time, the Canadian, Australian and New Zealand dollar markets were all trading at significant spreads over the US,” says Twaits. “We used our success in those markets as a springboard into other higher yielding currencies, such as South African rand and some of the European currencies that later became part of the euro.”
The importance of the non-core dollar business has not diminished in recent years. Far from it. As Twaits says, TD Securities is still very active at a primary and secondary level in more than 25 currencies. However, its proven pedigree in the non-dollar business as well as in the US capital market, meant that TD Securities’ expansion into the US dollar market for sovereign, supranational and agency (SSA) borrowers has been a natural extension of its existing global franchise, for two clear reasons.
The first is that it has allowed TD Securities to cultivate relations with an increasingly deep and global community of fixed income investors. “As institutional investors started to diversify out of government bonds and into states and provinces in markets like Canada and Australia, we were able to satisfy their demand for a wider range of liquid issues,” says Moore.
The second was the product of the relationships TD Securities built with the world’s most frequent and best-respected borrowers in markets such as Maple and Kangaroo bonds. This created a robust platform from which to extend its SSA origination capabilities for the same borrowers to the US dollar market.
Given the sharp declines in yields on euro denominated securities, the timing of TD Securities’ push into the dollar SSA space could scarcely have been better, and the results have been impressive. While others have withdrawn from the SSA business in recent years, TD Securities is now ranked in the top five global bookrunners for SSA borrowers in US dollars and among the top 10 for all SSA issuance. This year alone, it has led successful US dollar transactions for a who’s-who of SSA borrowers, including the World Bank, AfDB, EIB, KfW, NIB and BNG.
TD Securities has also strengthened its credentials over the last year in the market for SSA borrowers by expanding its presence in the sterling sector, which Moore says has chiefly been in response to demand from its issuer and investor base.
Beyond the market for conventional SSA issuance in US dollars, TD Securities has also assumed a leadership position in a range of other key products. Take the example of its commitment to the rapidly-expanding market for green bonds, where it has led deals this year for borrowers such as IFC and the Province of Ontario. “We started dedicating resources to our origination and distribution capabilities in the green bond market a little over a year ago,” says Moore. “There is clearly demand from investors for green issuance, and borrowers in both the SSA and the corporate market have a growing number of sustainable projects that they will be funding through the capital market. We want to be a market leader in this area, where we see a significant growth trajectory ahead.”
The success of its activities in the market for SSA borrowers has also allowed TD Securities to generate a number of other symbiotic benefits for issuers and investors alike. “Over the course of the last year, our derivatives business has expanded significantly, for example,” says Moore. “We have always been active in the derivatives space, but because we have had fewer constraints in terms of people or capital, we have been able to provide our issuing and investor clients with a growing range of hedging capabilities.”
Moore is upbeat about the prospects for the continued growth of TD Securities’ global SSA franchise. “As negative yields bite in Europe, we will see more and more European investors looking to buy non-euro assets, so we will continue to grow our sales force and distribution network in Europe to cater to this demand,” he says.