Worldbank Webinar Use of Cross Currency Swaps in the Belgian debt portfolio Anne Leclercq Director Treasury and Capital Markets Belgian Debt Agency January 2016 Page 1 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Belgium’s is the Belgium: 3.32% of EA19 population, 6th economy of the Euro-zone . yet 4.0% of EA19 GDP GDP Population (% EA19) (millions) Its 2014 GDP Germany 28.7% 81.2 amounted to France 21.2% 66.4 EUR 400.64 bn . Italy 16.0% 60.8 Spain 10.5% 46.4 End 2014 Netherlands 6.5% 16.9 Belgium’s total Belgium 4.0% 11.3 debt amounted to Austria 3.3% 8.6 EUR 427.48 bn representing Finland 2.0% 5.5 a debt/GDP ratio Ireland 1.8% 4.6 of 106.7%. Greece 1.8% 10.8 Portugal 1.7% 10.4 Belgium is a Slovakia 0.7% 5.4 medium sized Luxembourg 0.5% 0.5 issuer rated Slovenia 0.4% 2.1 S&P: AA/A-1+ Lithuania 0.4% 2.9 Moody’s: Aa3/P-1 Fitch: AA/F1+ Latvia 0.2% 2.0 Estonia 0.2% 1.3 Cyprus 0.2% 0.8 Malta 0.1% 0.4 EA19 100% 338.3 Source: Eurostat, population statistics as of 1 January 2015 & GDP at market prices, 2014 . Page 2 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Composition of the debt portfolio in figures The majority of the financing needs are covered by a Euro Standardised Instruments, LT financing both long and short term represent 87% of instrument called OLO’s . The current the total debt portfolio . outstanding amount of OLO’s is € 312 bn. LT Flexible instruments or Tailor-made instrumenst only amount to 3% or € 12 bn. Treasury Certificates, the Euro ST standardised financing instrument , represents only 7% of the debt portfolio or € 27 bn. Page 3 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Yearly financing strategy : set the framework Yearly General Guidelines General Guidelines o proposed by the Debt Agency o approved by the Minister and Parliament o sets the framework for the yearly Financing Plan • Proposes the maturities to be issued in the standard product • Defines/reiterates the risk parameters • the average life target of the debt portfolio • Refinancing and refixing risk • Foreign exchange risk • Defines the objectives to be achieved when issuing tailor-made instruments ( essentially EMTN) Yearly financing plan o Publication of amounts to be financed through different financing instruments : standardized or EMTN Page 4 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Riskparameters : Riskparameters 1. Refinancing and 12- month refinancing and refixing risk remain near their lowest level ever. refixing risk, as a 35 % percentage of total debt 30 % 16.40% 2. Average life of the 25 % debt portfolio 3. No foreign 20 % exchange risk. 15 % All risks should be 23.48% swapped to € . 10 % Hence CIRS. 5 % 0 % Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Refinancing 12 months Refixing 12 months Duration, average life and implicit yield The average life of the euro debt 9 portfolio amounts to 7.98 8 7.98 years , while the 7 duration exceeds 7.30 6 7 years, yet the implicit yield 5 has declined to 4 2.85%. 3 2.85 2 This year’s target in 1 terms of average life 0 is 8 years. Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Duration Average Life Implicit yield Page 5 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Rationale for issuing tailor-made products (EMTN) 1999 till 2008 : use of only standardized Euro financing instruments Trigger for changing the Issuance framework and Strategic decision making process 1999 till 2008 Concentrate on building a liquid benchmark curve o build sizeable lines over the whole curve o improve liquidity of secondary market 2008 : Decision to further diversify the financing instruments framework and to capture opportunities according to well – set conditions Page 6 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Rationale for issuing tailor-made products Rationale o Increase the investor base Tailor-made products are used as a TEASER. Belgium is medium sized issuer. Attracting investors by offering specific products will induce them to analyze the credit and install credit lines. This could lead to a further investor diversification for the standard products. o Cost efficiency In order not to cannibalize the main financing instruments tailor-made products need to be cost efficient versus the curve of the standard financing instrument Risk management strategy o Risk parameters prohibit any foreign exchange risk HENCE : usage of Cross Currency Swaps Page 7 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
What is a Cross-Currency Swap ? o A solution to transfer liquidity from one currency to another. o Reproduce a variable rate quarterly loan in one currency against a variable rate quarterly loan in another currency. o Swap of the nominal amount on the inception date and at maturity. o A Cross-Currency Swap is not sensitive to the evolution of rates and spot prices. o Idealy, the basis level would be null. o In reality, access to liquidity is not equal. o The basis margin represents these differences and is solely influenced by offer and demand. + 100 Mios EUR + 125 Mios USD 125M x Libor 3M 100M x Euribor 3M +/- spread - 125 Mios USD EURUSD Spot) - 100 Mios EUR Page 8 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
EUR-USD Basis Factors of evolution of the EUR-USD 2-year and 10-year base EUR-USD curve 0 • Short part of the -10 curve efficiently -20 managed by -30 Central Banks. • 2-to-4-year zone -40 BCE QE impacted by FX -50 Swaps. -60 • 5-to-10-year -70 zone affected by EUR-USD curve the ECB’s QE -80 2Y EUR-USD 10Y EUR-USD program. -90 0 • 20-year+ zone -100 affected by: May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 • CSA contract -10 modelling, CVA hedge -20 desks. • Foreign -30 currency debt issuance -40 (mainly in EUR-USD spot curve GBP and -50 EUR USD 09/06/2014 curve USD) by EUR-USD 04/06/2013 curve European -60 3m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 11y 12y 13y 14y 15y 16y 17y 18y 19y 20y companies. Page 9 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Regulatory context COMPENSABLE CROSS-CURRENCY LEVERAGE RATIO SWAP? NET STABLE FUNDING VOLCKER LAW RATIO (NSFR) Page 10 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
EMTN issuance EMTN issuance since 2008 The total amount issued under the EMTN format and in foreign currencies since 2008 amounted to 11.154 bn, with US $ representing 85% for 14 transactions. Current outstanding in foreign currency transactions amount to 4.3.bn or 1.5% of total debt. Small but interesting given the cost efficiency and the investor diversification. Page 11 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Issuing flexible instruments : set the framework Pre-trade legal and credit requirements Documentation Choice for EMTN program : o Multi-product, multi-currency, multi-maturity, multi-dealer program o Each transaction which be represented by a pricing supplement o Advantage : Ready-to-tap the market with a well-known documentation. o Disadvantage : impressive work to set-up and regular updates Credit requirements o Negociation of ISDA and CSA with all Primary Dealers Page 12 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Issuing flexible instruments: monitor the market Continuous monitoring of the market by Debt Agency and Primary dealers Input dealers o Market changes or inefficiencies in € /$ or € /£ or other currencies o Calculate the cost of a possible transaction on a given maturity including FVA and CVA charges Input Debt Agency o Indicate the value of the OLO curve o Indicate the cost efficiency required for the transaction Page 13 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Thank you for your participation. www.debtagency.be Page 14 Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency www.debtagency.be
Recommend
More recommend
