KfW Does Not Currently See Issuance Increase in 2023; Plans to Issue New 10Y EUR Soon, Perhaps in Q1

23 February 2023

Exclusive: KfW: Don’t See Issuance Increase in 2023; Plan to Issue New 10Y EUR Soon, Perhaps in Q1
- KfW: Cost benefits of issuing US dollar bonds ‘not that obvious anymore’
- KfW: Optimistic that in Q2, ‘we'll find a good window’ to issue US dollar-denominated bonds
- KfW: Aim to reach average maturity of five to six years; don't plan many long-term fundings

By Xavier D’Arcy – FRANKFURT (Econostream) – Germany’s state-owned bank KfW does not currently expect to increase the volume of its bond issuance in 2023 above the €80-85 billion it has already announced, Petra Wehlert, head of capital markets, told Econostream on Tuesday.

In an interview at KfW’s offices in Frankfurt, Wehlert said the issuer would be ‘quite careful not to go up too high’ in its funding generally. ‘We were at €90 billion last year, which was pretty high… for this year, it's a bit lower, €80 to €85 billion’, she said.

Asked whether KfW might increase its funding needs via capital markets in 2023 beyond this level, she said, ‘I can't exclude it, but I currently do not expect an increase in the overall volume.’

‘Our funding volume is mainly driven by the loan business and bond maturities’, she said, adding that ‘if there are some special mandates from the government, we have the additional possibility to draw lines from the Economic Stabilisation Fund.’

KfW regularly reviews its funding needs around mid-year and publishes an official statement in July.

KfW decided in January to ‘wait a little bit until markets stabilise and start by issuing a new five-year EUR benchmark’ instead of the traditional ten-year benchmark, she said. ‘I think there was a massive cheapening at the end of last year, especially in the ten-year segment; I thought, honestly, markets were positioned too much for a KfW ten-year, which ended in a distortion of the EUR-curve in this segment.’

The state-owned bank will probably issue a new ten-year benchmark ‘in the first half of the year, and it might also be in the first quarter’, according to Wehlert. On capital markets at the moment, ‘rates are pretty volatile - it's extraordinary that we saw rates going down at the beginning of the year.’

The cost benefits of issuing US dollar bonds ‘are not that obvious anymore’ for KfW, she said. This was due to the narrowing EUR-USD cross-currency basis and the fact that ‘the euro market has delivered such cheap funding levels’, she explained.

With regards to US dollar issuance, KfW was currently ‘monitoring the basis’ and looking to ‘find the right balance’, she said, adding that she was ‘still optimistic that in the second quarter, we'll find a good window’ to issue US dollar-denominated bonds.

It was ‘important for us to be present in the dollar market on a regular basis every year, just to make it clear that this is a strategic market and we want to stay and stick it out, not only when the sun is shining, but also when it's cloudy’, she said.

The bank aims to reach an average maturity ‘between five and six years, so we don't do so many long term fundings’, she said. Ten-year and five-year bonds were therefore most suitable for meeting KfW’s funding needs, in her view, but ‘we do 15 years because we also see a good demand there and can integrate it in our overall asset liability management.’

Asked about extending the maximum tenor to 30 years, she said it was ‘good that we don't need it’, because the long end of the yield curve was currently ‘not the easiest place to be.’

‘Green bond issuance is most beneficial in the euro market,’ she said, ‘because the European investors are most focused on sustainability.’ The US market for green bonds remained more limited, but KfW still saw opportunities there, she said: ‘The US is a different investor base and as KfW we want to take them with us, to increase the sustainable market worldwide; this is what we have done in the last years.’

The bank was ‘focused on making the issuance process more efficient’ through digitisation, she said, ‘because having those global notes physically signed, that's something which is not a concept for the future.’ Although she noted that ‘demand from investors was not too high’ for such technological developments, it was important that KfW play a leadership role as a large issuer in this regard, she said.