KfW

Public sector borrowers are confident going into the euro bond market next year, with reinvestments from maturing bonds held by the European Central Bank likely to cap any spread widening from the end of quantitative easing. But political threats — from populists polling well ahead of European Parliament elections in May, Brexit probably in March and the Italian government’s stand-off with the European Commission over its budget plans — are likely to bring volatility, meaning timing will perhaps be more important than in 2018. GlobalCapital brought together European SSAs, investors and investment bankers to discuss what 2019 holds for the euro market — as well as the SRI sector and new technology.

The dollar SSA market at the end of 2018 was in stark contrast to euros, despite the latter outstripping it in volume over the year. Even uncertainty over the Federal Reserve’s rate path in 2019 seems unlikely to shake the fortitude of the currency as a funding source for SSAs. But finding windows could become trickier as the Fed pulls liquidity amid global trade wars and rising populism.

In the last year that sovereigns, supranationals and agencies could enjoy the effects of the European Central Bank’s quantitative easing programme — but still had to cope with the Fed pushing up rates — GlobalCapital’s SSA team used its editorial judgement, with inspiration from GC’s world-famous bond comments and patented BondMarker app, to pick what it felt were the top trades of the year. The team strove to find deals that were not just the biggest — it looked for trades that set pricing markers, were innovative and brave or that made an impression in other ways. GC presents the winners here. Congratulations to the issuers and banks involved.

Work to bring the new risk-free rates to the dollar and sterling bond markets began in earnest this year as several issuers brought notes linked to them. But 2019 could be where clarity emerges on which of the different structures will win out.

KfW will look to begin its benchmark funding earlier than normal in the new year, amid expected volatile market conditions.

KfW has ramped up its funding volume for next year to its highest level since 2011, the agency said on Tuesday.

This week's funding scorecard looks at the progress of Europe's supranationals and agencies as the year comes to a close. Some of the issuers have also set their funding targets for 2019.

Public sector borrowers are gearing themselves for wider spreads and bigger new issue premiums in the euro market in 2019 following the expected end of the European Central Bank’s public sector purchase programme. The bigger and more liquid names will determine the environment for the rest of the market, according to SSA bankers.

Secondary spreads in the euro public sector market have widened heavily across the curve with just over a month to go before the European Central Bank is expected to put an end to its Public Sector Purchase Programme. SSAs are also being affected by the political ructions from Italy, Brexit and the global trade war, said bankers.

KfW’s €5bn November 2023 was the standout performer in a week of trades — from Erste Abwicklungsanstalt, Oesterreichische Kontrollbank and Swedish Export Credit Corp — that BondMarker voters rated highly.

Guarantor: Federal Republic of Germany

A megayacht of a trade from KfW this week suggested that potential headwinds — including the end of quantitative easing, Italy’s reckoning with the European Commission and Angela Merkel’s plan to step away from politics — are failing to sink sentiment in the euro market. But some SSA bankers warned that the trade was more just proof that KfW can float in these conditions — and that an upcoming deal for the European Financial Stability Facility (EFSF) will be a better buoy for the sector’s currents.