Exclusive: Slovenia DMO Head: Pre-Funded About a Third of 2023 Funding Needs

12 January 2023

CEEMEA Exclusive: Slovenia DMO Head: Pre-Funded About a Third of 2023 Funding Needs
- Slovenia DMO head: 2023 syndications better done sooner rather than later
- Slovenia DMO head: ‘Contemplating a return to the US dollar market’ this year
- Slovenia DMO head: Increase in Slovenian budget deficit shouldn’t make life difficult
- Slovenia DMO head: Unlikely to revisit ultra-long end of yield curve for now
- Slovenia DMO head: Braced for ECB active bond sales

By Xavier D’Arcy – VIENNA (Econostream) – The Slovenian sovereign has already completed roughly one third of its 2023 funding needs and continues to consider such frontloading the optimal approach, according to Marjan Divjak, Director General of the Treasury Directorate of Slovenia’s Ministry of Finance.

In an interview on Tuesday during the Euromoney Central and Eastern European Forum, Divjak dismissed concerns that the projected increase in Slovenia’s budget deficit to 5% of GDP this year could impede the country’s debt issuance.

Slovenia’s funding programme has a face value of €5 billion, with €1.5 billion already accounted for, he said. ‘We have pre-funded significantly for this year’s budget expenditures’, he said. ‘This is consistent with what we’ve done in the recent past and I think it’s right for us.’

As for Slovenia’s budgetary situation, he acknowledged the need ‘to talk to investors, to explain what the increased government spending means, how it is expected to be used.’ However, he said, the increase in the deficit is not such as to make life more difficult for the debt management office.

Divjak confirmed Slovenia’s plans to issue bonds in yen and potentially also inflation-linked bonds in 2023. The sovereign debt issuer was furthermore ‘contemplating a return to the US dollar market’ this year, he said.

Asked about the timing of Slovenia’s syndications in 2023, he replied, ‘It’s difficult to say, but these days it’s better to do it sooner rather than later.’

Regarding the maturity of future bond issues, Slovenia was unlikely to revisit the ultra-long segment of the yield curve for the time being, he indicated. ‘I think the ultra-end segment of the market is quite restricted at the moment, given that there is not much appetite for duration’, he said.

Market conditions ‘would need to change to a certain extent; in particular, the curves would need to steepen out’, he said.

‘The inverted mid-swap curve is driving also the Slovenia yield curve, which is inverted from 25 to 60 years’, he said. ‘So, the relevant curves really need to obtain a more usual shape, as in slightly upward sloping.’

As to the potential market impact of ECB quantitative tightening, Divjak said that Slovenian debt management had taken this into account.

The ECB can probably be expected to go beyond merely ending reinvestments and thus letting maturing bonds roll off its balance sheet. ‘We expect that they’ll actively start selling bonds’, he said.

‘The ECB will sell where the demand is’, he said, adding that he thought the central bank will be ‘analysing selling markets in general and analysing individual selling markets in the Eurozone.’

Tapping other markets, issuing in foreign currencies and offering inflation linkers would be part of Slovenia’s response to the ECB’s eventual ramping-up of QT, he said.