Investor Panel
The investor panel expects to be closely monitoring the dynamics between inflation levels and the Fed’s ongoing response to them in 2022. Rates are critical to their investment decisions at this stage of the cycle, while monetary tightening will lead to a preference for shorter duration. Meanwhile, with the ECB moving more slowly, there is likely to be a skew towards favoring euros. ESG is a growing focus, and despite ever-increasing issuance, demand is outstripping supply. Overall, participants most valued size, predictability, and a consistent presence in the market from issuers.
European Agency Panel
For European agencies, 2021 saw funding levels largely back to pre-COVID levels. ESG continued to grow in importance as a theme, in the form of ever larger green, sustainability and social bond issues. Looking forward, inflation is a key concern, as is ongoing uncertainty. Along with the arrival of less accommodating monetary policy in an environment of slowing growth, these factors could cause volatility in bond markets. However, our panel were broadly positive about the outlook for the coming year and eager to get face to face with stakeholders in 2022.
Supranational Panel
2021 was another year of leadership for the supranational sector; issuers remained highly active across markets to support the ongoing global response to COVID -19 and the global economic recovery. Throughout the year, the sector remained at the forefront of exploring new pools of investor liquidity and driving key market developments. Looking forward, an uncertain economic environment, tighter monetary policy and regional variations in the growth / inflation outlook are likely to mean recurring volatility over the next 12 months, making attractive funding windows scarcer and potentially more crowded. The challenge for issuers will be to navigate this terrain effectively to secure continued access to diversified funding across currencies. We speak to some of the key institutions in the sector to hear their thoughts on 2021 activity and their predictions looking ahead.
Kangaroo Panel
Following an understandably subdued 2020, the Kangaroo market returned to good health in 2021. It proved to be a record year for several established players, while there were promising debuts for some new entrants. The impact of the Reserve Bank of Australia’s QE program influenced tenor selection, driving increased issuance around the 3-year point on the curve.
Meanwhile, the Kangaroo market continued its pioneering role as the second most developed labeled bond market (after Europe). Growing levels of green, social and sustainability issuance saw ESG products accounting for close to half of Kangaroo SSA supply.
Canadian Maple Market
The Maple market experienced another strong year in 2021 and saw a record year of issuance with C$9.9 billion completed, up 41% on the back of a historical 2020. Attractive funding costs proved highly appealing for SSA issuers looking to diversify their borrowing by issuing in
Canadian dollars, with many returning to the Maple market after a long absence. Demand for these issues was healthy from both domestic and international investors, and an increased
ESG issuance aligned well with local investor demand. As well as green bonds, issues of other themes such as gender were well-received, and this trend is set to continue with other thematics including blue, health, education and water. Looking forward, SSA issuers continue to focus on their core markets in USD and EU R for benchmarks but remain keen to explore maintaining a presence in other key markets such as GBP, EU R, CAD and AUD whenever pricing levels permit.
Canadian Public Sector Issuers
Strong economic momentum saw improved revenues for Canadian provinces in 2021, allowing many to revise their deficit estimates lower than originally forecast. Debt-to-GDP ratios are improving, with higher near-term interest rates not expected to cause challenges in terms of debt servicing for either the provinces or federal government. Public sector issuance patterns continue to be driven by investor demand, with a focus on extended terms but with elevated issuance levels normalizing as deficits reduce. Meanwhile, demand for ESG-labelled issuance easily outstrips supply, leading to a green premium; provinces seek to establish ESG frameworks, but identifying qualifying projects of sufficient size is an issue. Meanwhile, thanks to a strong outlook and attractive yields, funding conditions for Canadian issuers in international markets remain very robust.
