The unwavering commitment of politicians and central banks to tackle the world’s indebtedness head-on has welcomed in a period of relative calm for the SSA markets. While there are still concerns that the favoured austerity regimes are doing little to relieve economic stagnation in many countries, there are now sufficient backstops in place to convince investors that, at least, things aren’t going to get any worse.
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European governments have coped admirably with their hefty funding programmes in the crisis years, but there are alarming signs that the primary dealers that have eased this process may be struggling to keep their businesses viable.
There has been a palpable shift in the market mood as events in Europe have developed, with investors demonstrating a level of resilience and stoicism that implies they have become desensitised to negative news. This is reflected in the European sovereign bond market, where appetite for peripherals is on the rise.
With eurozone attention focused on the south, Ireland has pushed through tough austerity reforms and resumed a normalised debt programme. It may take Portugal a little longer.
Fears of economic turmoil following elections in Italy earlier this year have failed to materialise as markets shrugged off concerns of a reversal of reforms set in place by by Mario Monti. A short-lived sell-off has been reversed as ECB measures appear to have acted as a robust firewall to the political stalemate.
Supranationals are stubbornly resisting calls to post collateral on swaps, but bankers warn they may pay a high price for their defiance if they drift down the credit curve to find swaps counterparties.
The EFSF has shed its early reputation for rigidity in its funding strategy and has upsized its programme to raise €58bn this year. That aim has been helped by a measure of good fortune as Japan accelerated its overseas bond-buying programme, while its auctions have established a foundation for liquidity in the eurozone.
The need for yield, Basel III requirements and attention from rating agencies all add to the challenges public sector issuers will have to face.
To see the digital version of this report, please click here. The European Investment Bank, whose shareholders are the 27-member states of the EU, approved a €10bn capital increase at the end of June last year. This will allow the EIB to boost funding by up to €70bn or 30% a year until 2015. “Since 2008, the EIB has made a valuable contribution to the EU economic recovery plan. This capital increase will strengthen the EIB and increase its contribution to addressing investment challenges that Europe faces,” said Herman Van Rompuy, president...
To see the digital version of this report, please click here. Sharia-compliant bond issuance reached US$131bn last year, a 54% increase on 2011, according to research from Kuwait Finance House. The market has matured as debt issuance has evolved from the US$500m five-year template that has been the norm. Indonesia’s US$1bn 10-year sukuk in November has helped propel the SSA sukuk market to a strong start this year. Indonesia printed not just its longest sukuk to date, it printed at tight spreads of 3.30%. That was a full 45bp inside the 3.75%...
It has not been the best of years for sovereign debt issuance in Asia. Following a robust 2012, in which regional sovereigns issued nearly US$60bn in new notes – the most in five years – this year just didn’t seem to get started.
A surprise offering last year opened new funding channels for Japan’s municipalities with implicit government guarantees.
Japan’s hope of hitting an inflation target of 2% in two years, largely through increasing the purchase of government bonds, could kick start its economy, but the plan has its detractors.