Municipality Finance is going against the broader expectations of increased SSA supply in 2023, keeping its funding forecast for next year flat to 2022’s. Projections are fuzzier than usual, however, given the heightened uncertainty that established itself in 2022.
The Finnish agency is expecting to need €8bn–€9bn of long-term funding in the next 12 months, a sum it called “in line with the new issuance volumes in 2022” in the release announcing its forecast.
It expects two-thirds of that funding to come from euro and US dollar benchmarks. The rest is slated for “tactical bonds” from markets such as sterling, Norwegian kroner and Australian dollars.
Shorter tenors are slated to play a more prominent role in MuniFin’s fundraising, the issuer said, the target bracket being between four and five years.
Commenting on ESG issuance, MuniFin wrote that it “aims to continue its commitment to issue green and social bonds next year”.
It has raised €8.8n in long-term funding in 2022, getting 94% of that via four currencies. Euro deals made up 39% of the sum, the sterling and US dollar markets each contributed 19% and Norwegian kroner another 17%.
Unlike MuniFin, Kommuninvest has upped its funding target to SKr130bn–SKr150bn (US$12.74bn–$14.7bn) from the SKr115bn–SKr135bn it expected from 2022.
Like 2022, volatility and timing will be among the biggest challenges the agencies face.
“We are slightly concerned about volatility next year,” said Tobias Landstrom, Kommuninvest’s deputy head of debt management. “Looking at the market in 2022 and the volatility, there was a much greater focus on central bank meetings, inflation numbers, and you really needed to seize the windows when they came up.
“If the market demands higher concessions, then this will be something most likely most issuers have to pay, and we will listen to the market as well as looking at potential windows more thoroughly than before.”
The issuer was forced to widen its spread from IPTs in the dollar market last month, indicating that the Swedish agency faced significant push-back against the pricing of its US$1bn short two-year.
The heightened uncertainty that emerged this year has made it harder to put a finger on a specific sum that issuers will need.
Landstrom explained that the larger range for the funding target was a result of the significant moves seen in the currency markets. “The forecast is not set in stone,” he said. “We view it as a moving target.” He added that Kommuninvest will continue with its strategy of matching the tenors it funds in with the tenors it lends at.
One certainty is that ESG outings will be a feature of Kommuninvest’s funding in 2023.
“We have SKr21bn of green debt maturing in 2023, which [we] will refinance in 2023,” said Landstrom, adding that Kommuninvest was also hoping to issue its first social bond.
The issuer made its debut in the single currency with a green bond in March and hopes to return to euros.
“We hope for a larger allocation to the euro market but as we are price sensitive, this will depend on the cost of hedging back to Swedish Krona," said Christian Ragnartz, head of debt management
“Liquidity is a key concern for us and other issuers,” he said. “Hopefully, the end of QE will bring more liquidity back into the market. The fact that yields are higher should help."
Barclays is forseeing a “normalisation” of SSA supply come January. Analysts at the bank forecast €663bn-equivalent of benchmark gross supply for 2023, versus €587bn-equivalent in 2022, when market and geopolitical uncertainty often made execution a tricky prospect.