2023年公共部门债务展望

SovereignDebtInstitute

PUBLICSECTORDEBTOUTLOOK

2023

THE

SEARCH

FOR

DEMAND

AND

LIQUIDITY

YOUR

GREATIDEAS

SHOULD

ANDWILL

COME

TOLIFE

WITHUSONYOURSIDE

SocieteGenerale,awardedBestBank

forSustainableFinanceinAfrica*,bringsyou

innovativefinancesolutionstomeetyour

ambitionsforamoresustainablefuture.

ADVISORYINVESTMENTBANKINGFINANCINGMARKETSTRANSACTIONBANKINGSECURITIESSERVICESEQUIPMENTFINANCEFLEETANDMOBILITYSOLUTIONS

*AwardedbyEuromoneyfor2022.SocieteGeneraleisaSocieteAnonyme,withitsregisteredofficeat29BoulevardHaussmann,75009,Paris.SocieteGeneraleisaFrenchcreditinstitution(bank)authorisedandsupervisedbytheEuropeanCentralBank(ECB)andtheAutoritédeContrôlePrudentieletdeRésolution(theFrenchPrudentialControlandResolutionAuthority)(ACPR)andregulatedbytheAutoritédesMarchésFinanciers(theFrenchfinancialmarketsregulator)(AMF).Thiscommunicationisnotdirectedatorintendedforretailclients.January2023.

OMFIF.ORG

/SDI3

8

4

14

18

4

Executivesummary

Thesearchfordemandandliquidity

6

Sponsor'scomment

Energycrisisandgeopoliticsunderpinnegativecreditoutlookforeuroareasovereignsin2023.ByHeikoPeters,Moody'sInvestors

Service

8

Chapter1:

Liquidity

DMOseyemoreincentivesforprimarydealerstoboostliquidity

13

Sponsor'scomment

InnovationwillbekeyforAfricansovereignsintheinternationalbondmarketsin2023.ByKarimElzein,

SocieteGenerale

14

Chapter2:

ESG

SSAsmustbecomemoreinnovativewithGSSissuance

18

Chapter3:Databank

GlobalSSArankings2022

PUBLICSECTOR

DEBTOUTLOOK

2023

OMFIF.ORG

/SDI5

primarymarkets.

Tougherprimarymarketconditionsarealsoreflectedinborrowers’expectationsofthecostofissuance.Around60%ofpublicsectorborrowerssaynewissuepremiumswillbehigher–mostofthemmarginallyso,butsomesubstantially.Only6%thinkpremiumswillbelower.

Liquidity–orthelackofit–isamajordiscussiontopicbetweenborrowersandtheirinvestors.Two-fifthsofrespondentstothesurveyrateliquidityasoneoftheirtoptwoconcerns.Inthesovereigndebtspace,alotofthisdiscussioniscoalescingaroundtheroleofprimarydealersandtheirwillingnessandabilitytoprovideliquidityviaauctionsandinthesecondarymarket.One-thirdofborrowerssaytheyhavehaddiscussionsinwhichprimarydealershaveexpressedconcernsabouttheirobligations.

Inresponse,around45%ofissuerssaytheyarelookingatwaystoprovideprimarydealerswithnewincentives,while18%saidtheyareconsideringhowtoeaseobligationsamongtheircorebankintermediaries.Some15%ofsovereignissuerssaytheyexpecttoincreasetheirnumberofprimarydealersin2023,raisingtheimportanceofensuringthatbankshavetherighteconomicincentivestobeactiveparticipants.

Publicsectorissuersareexpectedtocontinuetotaketheleadinthedevelopmentofsustainablebondmarkets.Aroundone-fifthofrespondentssaidtheywouldissuemorethan20%ofthisyear’sborrowingprogrammeinasustainableformat.Thelargestsectorwillremaingreenbonds–expectedfromcloseto50%ofborrowers–butotherformsofsustainablebonds(27%)andsocialbonds(21%)willalsobeprevalent.Thesovereignsustainability-linkedbondmarketisalsoexpectedtofurtherdevelop,with10%ofborrowerslookingtoissueinthisformatin2023,allfromtheemergingmarkets.Anumberofrespondentscommentedthatbuildingnewrelationshipswithenvironmental,socialandgovernanceinvestorswillbeacorepartoftheirinvestorrelationprogrammeoverthenextyear.

Thesurveywascompletedby33sovereign,supranationalandagencyborrowers(two-thirdsfromdevelopedmarkets,withtheremainderfromemergingmarkets)inDecember2022andJanuary

2023.

Thesesurveyresultsformthebackboneofthisreportontheoutlookforpublicsectordebtissuancein2023.Onthefollowingpages,weassesstheliquiditychallengesforSSAborrowersandwhattheyaredoinginresponse,withcommentfromborrowersandbanks.Weanalysethecurrentstateofprimarydealershipsandwhatthefutureofthismodelwilllooklike.WereviewtheSSAESGmarketin2022andhowthiscanberechargedin2023,withtheintroductionofnewproductssuchasSLBsandmoredebutESGissuers,aswellasalookathowESGframeworkscanbetterevolve,withcommentfromborrowers,banksandinvestors.

4OMFIFSDIPUBLICSECTORDEBTOUTLOOK2023

EXECUTIVESUMMARY

THESEARCHFOR

DEMANDANDLIQUIDITY

Therelationshipbetweensovereignsandtheirprimarydealersisinthe

spotlightasborrowersgrapplewithachallengingmarketenvironment.

ByCliveHorwood

60%

ofborrowerssayreduceddemand

frominvestorsisoneoftheirtop

concerns

38%

believetheaveragecoverageof

theirsyndicationsin2023willbeless

thantwotimes

64%

ofSSAborrowersplantoincrease

theirinvestorrelationsefforts

45%

ofsovereignsareexploringwaysto

givemoreincentivestotheirprimary

dealers

60%

ofissuersthinknewissuepremiums

willbehigherin2023

19%

ofpublicsectorborrowerswill

domorethan20%oftheirannual

fundingprogrammeinGSSformat

PUBLICsectorborrowersfacearaftofchallengesinfundingtheirprogrammesthroughdifficultandvolatilemarketsin2023,asurveyfromOMFIF’sSovereignDebtInstitutereveals.Concernsincludethelevelofdemandfrominvestors,thesizeofnewissuancepremiums,thelackofliquidityandtheabilityofsovereignissuerstoincentivisetheirprimarydealergroups.

Asidefromtheusualrushtoissuanceattheverystartoftheyear,andatypicallybusyJanuaryinthesovereign,supranationalandagencyprimarymarkets,thesurveyresultspaintaclearpictureofborrowersnervousabouttheirabilitytoaccessthemarket.Typically,publicsectorissuerslooktofrontloadtheirfundinginthefirsthalfoftheyear,withasmuchas70%oftheirborrowingcompletedbytheendofthesecondquarter.Thisallowstheissuerstostrategicallypickoptimalfundingwindowsinthelatterpartoftheyear.

ButtheSDIsurveyresultsshowthattwo-thirdsofborrowersexpecttohavefundedupto50%orlessoftheirannualrequirementinthefirstsixmonthsof

frominvestorsasoneoftheirtoptwoconcernsfor2023,despiterisingratesboostingreturnsforbuyers.Coverageratiosforsyndicationsarelikelytofall,asthedistortionofquantitativeeasinginsomemarketsiswithdrawn.Some38%ofborrowersexpectsyndicationstoonlybeoneortwotimescovered,and50%expectcoverageoftwoorthreetimes,suggestingthattheeraofinflatedorderbooksmaybewellandtrulyover.

Itisthereforenosurprisethattwo-thirdsofrespondentssaytheywillincreasetheirinvestorrelationeffortsin2023.Theopeningupofglobaltravelpost-Covid-19islikelytoseemoreborrowersgetontheroadforinvestormeetings,bothdealandnon-deal.Closeto40%ofborrowersareplanning

2023.Asubstantialpartofthisgroupcomesfrom

emergingmarketsorissuerswithsmallerannual

fundingrequirements.Butithintsthatsomeexpect

marketconditionswillbeextremelytoughearlyin

theyear,duetoalackofclarityfromcentralbanks,

withthehopethat,asinterestrateincreaseslevel

offasinflationsubsidesinthesecondhalfofthe

year,issuancewindowswillbecomemorefrequent

andbenign.Butthismightleaveissuershostage

tothefortunesofthemarketifconditionsfailto

improve.Morethanhalfofrespondentssaidthelack

ofclearissuancewindowswasoneoftheirtopthree

concernsfortheyearahead.

Around60%ofborrowerscitereduceddemand

toaccessnewinvestors,andthree-quarterswantto

deepentheirrelationshipswithexistinginvestors.

Justunderhalfofrespondentssaidthatthereturn

THEOPENINGUPOFGLOBALTRAVELPOST-oftraditionalinvestorsasratesrisehasbeenthe

COVID-19ISLIKELYTOSEEMOREBORROWERSmostsignificantchangeintheinvestorcommunity

GETONTHEROADFORINVESTORMEETINGS,overthepast12months,whilemorethanaquarter

BOTHDEALANDNON-DEALhaveseenareductioninhedgefundparticipationin

6

OMFIF.ORG/SDI

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OMFIFSDIPUBLICSECTORDEBTOUTLOOK2023

SPONSOR'SCOMMENT

ENERGYCRISISANDGEOPOLITICS

UNDERPINNEGATIVECREDIT

OUTLOOKFOREUROAREA

SOVEREIGNSIN2023

Greentransitionpresentssomeupsidesforeconomicgrowth.ByHeiko

Peters,vicepresidentandsenioranalyst,Moody'sInvestorsService.

reboundintouristarrivalsin2022.ThereisalsoasignificantriskofstagflationtakingholdbecauseofthechallengestheEuropeanCentralBankfacesincontrollinginflation.Higher-for-longerenergypricesmeananysubsequentrecoveryin2024willbeshallow.

Discretionarypublicsupportprogrammesandthekicking-inofautomaticstabiliserswillcontainthesocialeffectsoftheenergycrisis.Atthesametime,theywill–togetherwithagradualriseininterestspending–widentheaverageeuroareafiscaldeficitto4.1%ofgrossdomesticproductfrom3.9%in2022.Anegativeinterestrate-growthdifferentialwillcontributetoamoderatedeclineintheregion'saveragedebtburdento93%ofGDPin2023,butthisremainswellabovethepre-pandemiclevelin2019of84%.Infact,onlyGreece(Ba3stable),Ireland(A1positive),Cyprus(Ba1positive),Portugal(Baa2stable)andCroatia(Baa2stable)willhavelowerdebtburdensthantheydidin2019.Debtlevelswillcontinuetovarywidelywithintheeuroarea,from22.6%ofGDPinEstonia(A1stable)to162.9%inGreece.

Alongsidethis,risinginterestrateswillcontinuetoweakendebt-affordabilitymetricssuchastheinterestpayments-to-revenueratioto3.9%in2023and4.2%in2024,whichwillbeitshighestreadingsince2017andwellabovelowsrecordedat3.1%in2021.Yieldsonbenchmark10-yearGermangovernmentbondshaverisento2.5%atendof2022from-0.2%atendof2021,againstthebackdropofECBmonetarytightening.AlthoughECBactionwilllimittheriskofasuddenwideningofspreadswithintheeuroarea,Italy’s(Baa3negative)

1:INTERPLAYOFSEVERALDRIVERSUNDERPINSMOODY’SNEGATIVEOUTLOOKFOREUROAREASOVEREIGNS

Factorsdrivingtheeuroareasovereignoutlook

Source:Moody's

InvestorsService

thecomingyear:short-termdebtandlong-termdebtwithoutstandingmaturityoflessthanayearamountsto20.8%ofGDPinItalyand17%inSpainasofNovember2022.Thatsaid,therelativelylongaveragematurityofgovernmentdebtsecurities(7.1yearsinItalyand7.7yearsinSpain)willstilllimitthepassthroughtodebt-affordabilitymetricsoverthecomingyears.

Theeuroareaalsofacesanumberoflong-termchallenges.Higher-for-longerenergypricesthreatenthecompetitivenessofsovereignswithlarge,economicallyimportantbutenergy-hungrychemical,automotiveandothermanufacturingsectors,particularlySlovakia(A2negative)andItaly.Acombinationofpoliticalinstability,energyinsecurity,amarkedlossoftradecompetitivenessandthecrystallisationofcontingentliabilitiescouldalsoleadtoanabruptriseintheeuroarea'sriskpremia.Atthesametime,unfavourabledemographictrendswillweighonpotentialgrowthandfiscalsustainabilitywithouteffectivepolicyaction.Thefallintheeuroarea’sworkingagepopulation(aged20-65)isforecasttoaccelerateto0.5%peryearin2030,which,thingsbeingequal,willweakentheregion'spotentialgrowthbyroughly0.5percentagepoints.Itwillalsoincreasepressuresonavarietyofspendingcategorieslikepensions,healthcareandlong-termcare.Lookingatthefivelargesteuroareacountries,Germany(Aaastable),ItalyandSpainfacemateriallylargerdemographicpressuresthanFrance(Aa2stable)andtheNetherlands(Aaastable).

Thatsaid,thegreentransitionaswellas

0.5%

Fallintheeuro

areaworkingage

populationperyear

by2030

investmentsandreformslinkedtotheEuropeanUnionrecoveryfundspresentupsideopportunitiesforfuturegrowthperformance.AlmostallofthelargestbeneficiariesofEUrecoveryfundsarebroadlyontrackregardingtheirtargetscontainedwithintheirnationalrecoveryandresilienceplans.Investmentonclimatemeasuresincludingsustainablemobility,energyefficiency,renewableenergy,climatechangeadaptation,thecirculareconomyandbiodiversityarealsolikelytolowerenvironmentalrisksandcouldeaselong-termenergysecurityconcernstriggeredbytheRussia-Ukraineconflict.However,long-standingbottlenecks,likelabourshortagesandmaterialandlengthybureaucraticprocedures,presentmajorimplementationrisks.Moreover,meetingfuturereformmilestoneswillbecomeincreasinglydifficultforsomefrom2023onward,especiallyamiddifficultsocioeconomicconditions.Therearealsoconcernsoverwhethermoneywillbespentefficientlyandcostoverrunsgivenmostprojectsweregenerallyplannedandcostedbygovernmentsafewyearsago.

THEoutlookforsovereignsintheeuroareain2023

isnegative,reflectingourexpectationsforcredit

fundamentalsoverthenext12months.Sector

outlooksaredistinctfromratingoutlooks,which,

inadditiontosectordynamics,alsoreflectissuers'

specificcharacteristicsandactions.Asector

outlookdoesnotrepresentasumofupgrades,

downgradesorratingsunderreview,oranaverage

ofratingoutlooks.Whilethegreentransition

presentssomeupsidesforeconomicgrowth,other

factors–mainlynegative–arelikelytoshapethe

creditconditionsoftheregion’ssovereignsinthe

nearterm.

Weexpecttheregion’ssovereignswillavoid

energyrationingoverthewinter,thankstoefforts

tofillstorage,sourcenaturalgassuppliesfrom

countriesotherthanRussiaandmanagedemand,

aswellasmildtemperatures.However,supply

conditionswillremainstrainedbecauseexisting

infrastructureisgearedaroundsourcinggas

fromRussia.Resultinghighenergypricesand

ongoinguncertaintywill,despitegovernment

support,weakenconsumerspendingandbusiness

investmentmateriallyandtherebydomestic

demand.

Atthesametime,weakdemandfrommajor

tradingpartnersandhighenergypriceswillweigh

onexportsdespiteaneasinginglobalsupplychain

disruption.Similarly,therecoveryintourismhas

probablypeaked,withhighertravelcostsanda

fallinpurchasingpowerinkeysourcecountries

containingfurtherupsidesinwhatwasaverystrong

WEAKDEMANDFROMMAJORTRADINGPARTNERS

ANDHIGHENERGYPRICESWILLWEIGHONEXPORTS

DESPITEANEASINGINGLOBALSUPPLYCHAIN

DISRUPTION

andSpain's(Baa1stable)debt-affordabilitymetrics

appearmateriallyvulnerabletorisingratesgiven

largeincreasesintheiralreadyhighpublicdebt

sincethepandemicandrelativelyhighlevelsof

floating-ratedebt.Inaddition,bothcountries

featurerelativelyhighsharesofdebtmaturingover

8OMFIFSDIPUBLICSECTORDEBTOUTLOOK2023

CHAPTER1:LIQUIDITY

DMOsEYEMOREINCENTIVES

FORPRIMARYDEALERSTO

BOOSTLIQUIDITY

Toughmarketsareforcingpublicsectorissuerstolookatallpartsof

theirfundingstrategy.Investorrelationsaretothefore,butthebank/

borrowerrelationshipisalsobeingreapparaised.ByBurhanKhadbai

LASTyearmarkedanextremelyvolatileperiodforgovernmentbondmarkets,withtheconsequencesoftheCovid-19pandemicstillplayingoutbutnewissuesarising,suchasthewarinUkraine,highinflationandhugeinterestraterisesfromcentralbanks.

Europeansovereignborrowerswereattheheartofthis,withChristianKopf,headoffixedincomeatUnionInvestment,calling2022‘themostdifficultyearintheEuropeangovernmentbondmarketsincethesecondworldwar’.

‘Wearefacingamultitudeofproblems…eachofthesecrisesisachallengeinitself,andtheirsimultaneityandinterdependencehaveledtoverylargelossesinthebondmarkets,’saidKopf.‘The

capitalmarketsarenotacasino,butareflection

oftheeconomicsituation,anditwouldhavebeen

surprisingifpriceshadriseninthefaceofthis

polycrisis.’

Thesetoughconditionsareunlikelytoeasein

2023,accordingtotheresultsofasurveyofmore

than30leadingpublicsectorborrowers.

THESETOUGHCONDITIONSAREUNLIKELYTOEASEIN2023,ACCORDINGTOTHERESULTSOFASURVEYOFMORETHAN30LEADINGPUBLICSECTORBORROWERSCARRIEDOUTBYOMFIF

1.1.Issuersworriedaboutdemand,pricingandliquidity

Whatareyourbiggestconcernsin2023?Shareofrespondents,%

Reduceddemandfrominvestors

Highernewissueconcessions

LackofclearissuancewindowsLiquidityconcernsCompetingsupply

Other

0

3

020

1

0405060

70

BiggestconcernSecondbiggestconcernThirdbiggestconcern

Source:OMFIFSDIissuersurvey

1.2.Orderbookslikelytoshrink

Whatdoyouexpectaveragesubscriptionratiosforsyndicationstobein2023?Shareofrespondents,%

50

40

30

20

10

60

0

1-22-33-44+

60

Source:OMFIFSDIissuersurvey

1.3.Issuerswillpaymoreintheprimarymarkets

Howwillnewissuepremiumschangein2023relativeto2022?Shareofrespondents,%

50

40

30

20

10

0

TheywillbelowerTheywillbethesameTheywillbemarginallyTheywillbesubstantially

higherhigher

Source:OMFIFSDIissuersurvey

OMFIF.ORG

/SDI9

Reduceddemandfrominvestorsisthenumberoneconcernofpublicsectorborrowersin2023,accordingtothesurvey(Figure1.1).Thesizeoforderbooksislikelytoshrink,with50%ofborrowersexpectingtheaveragesubscriptionratiotostandattwotothreetimes,while38%expectittobeevenloweratonetotwotimes(Figure1.2).Ontopoflowerdemand,issuersarelikelytopaymoretoissuenewdebt,withalmost60%ofborrowersexpectingnewissuepremiumstobehigherin2023thaninthepreviousyear(Figure1.3).

VolatilityintheEuropeangovernmentbondmarkethasresultedinwiderbid-offerspreadsorthedifferencebetweenthepricesquotedandwhatbondssellfor.Tradevolumesofgovernmentbondsforcertainsovereignshavealsobeenaffectedwhileorderbooksizeshavefallen,showingtheextenttowhichoverallliquidityhassoured.

SpeakingattheTeamEuropeborrowersseminarhostedbyOMFIF’sSovereignDebtInstitute

on25October,TammoDiemer,memberofthemanagementboardatDeutscheFinanzagentur,theGermandebtmanagementoffice,saidwiderbid-offerspreadsandlowertradevolumesofGermangovernmentbondswere‘areflectionofthehighervolatility’anda‘naturalreactionofmarketparticipantstothissituation’.

Whilethereisstill‘verygooddemand’forBunds,Diemeraddedthatticketsizesweresmaller.‘Werunmuchmoreticketsperdaythaninthepastinordertosortofdistributethesameamountoffunding.’

TheseviewsweresharedbyotherEuropeansovereignDMOheadsduringtheseminar.‘This

isaveryseriousissuethatwearefacingtooandIhavetosayit’ssomethingwelookatverycarefullybecausetheliquidityonthesecondarymarketforushasalwaysbeenacrucialdriverforasoundfundingactivityintheprimarymarket,’saidDavideIacovoni,directorgeneralofpublicdebt,MinistryofEconomyandFinance,Italy.

IacovonisaidvolumesofItaliangovernmentbonds(BTPs)tradedinthethirdquarterof2022wereinlinewithvolumestradedinthethirdquarterof2020,duringthepeakofthepandemic.

BTPbid-offerspreadswerealsoinlinewithlevelsduringthesecondandthirdquarterof2020,saidIacovoni.‘However,thesituationisnothomogeneousacrossthecurve,’henoted.‘Forexample,thepointsofthecurvethatarecoveredbyfuturecontractstendtobehavebetterintermsofthebid-askspread,basicallybecausedealershavethesehedgingtoolsthattheycanuseandsothesetendtohelpinthiscase.’

‘TherehavebeendiscussionsonliquidityinEuropeangovernmentbondsforanumberofyearsbutitfeelslikelastyearitbecameveryprominentandIthinkthereasonisclearlywiththelackofQE[quantitativeeasing]thereisnowgreaterrelianceontheprimarydealercommunity,’saidaglobalheadofsovereign,supranationalandagencydebtcapitalmarketsatatop-tierEuropeaninvestment

10OMFIFSDIPUBLICSECTORDEBTOUTLOOK2023

bank.‘Therehavebeenanumberoffaileddealsbysovereignswhichisprettymuchunheardofsincethecreditcrisis.’

EASINGOBLIGATIONS

Whileprimarydealersareprovingtheircriticalimportancetosovereignborrowers,thewidebid-offerspreadsshowthattheyarestrugglingtomaintaintheirtradingobligations.

‘Inrecentyears,primarydealershavecomplainedaboutthecostofinfrastructureandthebalancesheetstrainsandnow,withthevolatility,thereismorefocusonthisasissuershavewokenuptoit,’saidtheglobalheadofSSADCM.‘Inrecentyears,issuerswouldsayyoustillover-bidonauctionsandarestillbuyingbonds,sowhat’stheproblem?’

Inresponse,Europeansovereigndebt

managementofficesareacting.

‘Whatwe’vedoneisgivensomeflexibilitytoprimarydealersintheirquotingobligationsandbeenalittlebitlenientonthethresholdsforthis.Andthatseemstohaveworkedwell,’saidMaricPost,director,treasuryandcapitalmarketsatBelgium’sdebtagency,addingthattheDMOalsoappliedthesechangesduringtheoutbreakoftheCovid-19pandemic.

OtherEuropeanDMOshavealsomadesimilaradjustments.

‘Someofourprimarydealersarefacingdifficultiesinmaintainingourquotingobligationsbutwehavebeenregularlyupdatingourobligations,’saidKarenvanderWiel,headofpolicyandriskmanagementattheDutchStateTreasuryAgency.‘Wehaveseenthatthemarketisdifficultsowehavetriedtoworkwiththem.’

Primarydealershavestrictobligationsincludingprovidingregularquotesonbondsviaelectronicinterdealerplatformswhichblendintoacombinedmonthlyscore,withdealershavingtomeetaminimumscore.WhattheBelgianandotherDMOshavedoneisadaptthatminimumscoretoeasethepressureontheirbanks.

Themajorityofissuersthinktheyhavetherightnumberofprimarydealers,althougharound20%thinktheyhavetoofew.Nosurveyrespondentsthoughttheyhadtoomanyprimarydealers.Thebiggerquestionis:aftermanyyearsofbankswithdrawingfromprimarydealershipsduetothepooreconomicsinvolved,cansovereignsmaintaintheirdealergroups?Onlyafractionexpectstheirprimarydealerlisttoshrink,butisthisasignofcomplacency?

Inthesurveyofpublicsectorborrowers,30%ofsovereignDMOssaidtheyhadexperiencedsomeoftheirprimarydealersexpressingconcernsabouttheirobligations(Figure1.4).Oneborrowersaidtheconcernswerearoundliquidityprovisionsbecoming‘moredifficultandthisiscostlyforprimarydealers’.

Anotherborrowersaid‘primarydealersownedbyinternationalbanksdon’thavemuchflexibility

1.4.Market-makersvoicemisgivingsaboutissuanceeconomics

Haveyouexperiencedprimarydealersexpressingconcernsabouttheir

obligations?Shareofrespondents,%

30

70

YesNo

Source:OMFIFSDIissuersurvey

€7bn

TofurtherboosttheliquidityofKfW’sbonds,

theGermanagencyislookingatincreasingthe

outstandingvolumesofneweurobenchmark

bondsto€6bnandincreasingtheoverallsizeby

tapsto€7bn

toincreasetheirportfolioduetothelimitations

imposedbytheparentbanks’.

‘Clearlylastyearwasspecialattimesand,when

marketsarevolatile,itbecomesdifficulttofulfil

theobligationstoissuersandonquotingbid-offer

spreads,’saidMarkAndryeyev,globalheadof

syndicateandtradingatCommerzbank.‘Foralong

time,sovereignsinEuropedidn’tcareaboutprimary

dealershipsbutthelastfewyearshaveshowedthat

theyneedbanksandthatbanksplayacriticalrolein

financialmarkets.’

INCREASINGINCENTIVES

Europeansovereignborrowersarenotjuststopping

ateasingquotingobligations.Theyareactively

lookingatotherwaystoprovidemoreincentivesto

theirprimarydealers.

AccordingtoaseniorSSADCMbanker,European

sovereignissuersare‘discussingwaysoftryingto

incentiviseprimarydealersmorethantheyhavefor

alongtime’.Thisissupportedbythesurvey,where

45%ofsovereignDMOssaidtheywerelookingto

providemoreincentivestoprimarydealerstoboost

1.5.Primarydealerscrucialtobuildingtradingvolumes

Howareyoulookingtoboostliquidity?Shareofrespondents,%

50

40

30

20

10

0

incentivestoprimary

obligationsofprimarymoneyaccountsdealers

Providingmore

Makingmoreuseofrepomarket

EasingmarketmakingAllocatingmoretofast

Other

dealers

Source:OMFIFSDIissuersurvey

1.6