SSA giant KfW has announced it expects to put more weight on US dollar issuance in 2024, after that market proved a smoother platform compared to the thorny euro sector after the summer break. The German development bank is targeting €90bn–€95bn of funding in 2024, keeping its goal flat to the around €90bn it has raised in 2023.
Though dollars look set to play a bigger role in fulfilling that target, at least half of the sum is expected to come via bonds denominated in KfW's home currency, the euro, the issuer said. In 2023, the €48.6bn in euro products KfW issued made up 54% of its funding. Those in dollars – totalling a nominal US$28bn – accounted for 29%.
KfW's decision to increase its focus on dollars follows the emergence of more difficult conditions in the single currency as 2023 progressed following the end of QE, said KfW's treasurer, Tim Armbruster, in a briefing for the new funding plan. He said that made funding across the pond more attractive. "We changed the [KfW] strategy in the second half of the year," he said. "We had a clear dollar focus."
That resulted in KfW issuing six dollar benchmarks in 2023, said KfW's head of funding, Petra Wehlert, at the briefing. The last time it issued so many was in 2018, she said.
On the ESG front, around €10bn–€13bn of 2024's total is to come via green bonds. While there has been grumbling in some sectors that a slim greenium is eroding the benefits of labelled issuance, Wehlert said KfW still sees advantages in the product thanks to, among other things, the increased bid available versus conventional issuance.
"It's still the case that [green issuance] is a product that investors prefer [compared to conventional bonds]," Wehlert said.
Digital bonds
Next year, KfW plans to continue developing its footprint in digital bonds and issue what it called its "first tokenised bond". KfW has already made some inroads into the currently experimental market for products based on new market technology, including a bond issued via Clearstream’s platform for digital products, dubbed D7, in late 2022.
"As one of the largest issuers, we're always interested in optimisation potential," Armbruster said. "Our focus is very much on the learning experience [with digital products]."
Union Investment will provide an anchor order for the tokenised deal, Armbruster said. The German asset manager is not new to digital issuance, having been involved in digital projects from the European Investment Bank and the World Bank. KfW is also looking for other investors to participate in the deal, Armbruster said.
He added that KfW intends the deal to be a chance for investors to become more familiar with bonds issued via distributed ledger technology – a technology often used in digital bond projects that promises enhanced efficiency and speed when it comes to issuance in the capital markets.
Armbruster declined to expand on what specifically KfW's tokenised bond will and will not include in terms of technological advancements. He said the issuer would announce more details about the project in early 2024.