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Those involved in raising capital for sovereigns are entering 2010 in much better spirits than they were going into 2009. And for good reason: the world’s economy is recovering from a deep recession, the panic and fear that characterised the first few months of 2009 are gone and sovereign issuers and their banks have largely achieved what they set out to do, not least of which was raising an unprecedented $5tr of funding. But this does not mean 2010 will be easy. Far from it. Quantitative easing is on its way out, inflation — possibly — is on its way back in, competing supply is rising fast and macroeconomic shocks — like the kind Dubai gave us in late November — are more likely than ever before as a result of the dangerously high levels of debt held at state level. In this overview of EuroWeek’s inaugural special report on the financing challenges facing sovereign borrowers, Toby Fildes looks at what they have achieved in 2009 and what they need to look out for in 2010 and beyond.
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Auctions are still sovereign debt managers’ preferred method of issuance but 2009 has been the year of the syndicated deal, with countries stepping up their use to unprecedented levels. Will they still be so popular when economies start to recover
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Following a hectic but highly successful year, sovereign borrowers in Northern Europe will face a formidable funding challenge in 2010. Total borrowing requirements will remain at very high levels, driven by persistently high deficits. At the same time, however, with monetary easing coming to an end, the easy liquidity that many sovereign borrowers were able to access in 2009 will begin to recede, especially in the second half of 2010.
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It used to cost banks money to be primary dealers. But in the last 12 months the government auction business has swung back into profitability and worked exceptionally well, considering the vast increase in issuance volumes. Will 2010 be as sweet?
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The pressure is on for sovereigns to use private placements in a bid to lower funding costs and find new investors. But the complex product brings its own set of challenges for debt management offices. Francesca Young reports.
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Foreign central banks have never been more important as buyers of Western government debt. But as fears grow over the direction of major currencies and interest rates, markets will have to think twice about the drivers of official sector demand. Taimur Ahmad reports.