Transcript: Interview with KfW Head of Capital Markets Petra Wehlert
29 April 2025
By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 8 April 2025 with Petra Wehlert, Head of Capital Markets of KfW.
Q: Ms Wehlert, you plan to raise €65-70 billion in the capital markets in 2025, less than what you issued last year. Why is this?
A: Every year we have a look at our liquidity position before we announce the new funding volume. At the end of last year, we had a very comfortable liquidity position. Our business has gone back to normal after the energy crisis and Covid, so our funding programme has come back to normal, too. Also, the forecasts for economic growth in Germany decreased and so did the projections for the demand for promotional loans. Thus, we saw no necessity of holding high liquidity positions. That`s why we lowered our funding target accordingly. We usually review our funding needs in the middle of the year. If the picture is different then, we will adjust our funding target accordingly and communicate this to the market.
Q: Do you expect this downward trend in your funding needs to continue in the years to come?
A: Well, it is hard to make a statement about the years to come. Things have changed quite dramatically and we’re not even halfway through the year. We hope the new government in Germany will be in place soon, and we have to see how KfW can support here as a promotional bank. What’s clear to KfW already now is that we have a focus on increasing resilience and competitiveness in Germany and Europe.
Q: A few weeks ago, KfW raised €9 billion in a dual-tranche deal. How did this go?
A: It was a 10-year and a 3-year dual-tranche. Here we raised a large amount of liquidity and levelled it out in different maturities, so we can get closer to the average duration we have to achieve, which is always about five years. On the other hand, we don’t want to oversupply the market with large transactions. For dual tranches, we can use a single issuance window to present investors with two maturities at the same time.
Q: So far, you've already delivered a significant amount of your projected issuance. Do you expect to finish your 2025 projected issuance activities early in the year?
A: Having raised more than €30 billion in the first three months, we have already funded about 50% of our needs. That is relatively high for the first quarter. However, we aim at about 70% mid-year and if you look at the whole SSA segment, that's rather average. It is regularly the case that you raise most of the liquidity in the first quarter. January is usually the busiest month after a quieter year end, especially for the EUR market. The USD market is normally open longer and I think this will be the same this year.
Q: So, you don't really expect the current environment to affect your issuance?
A: It doesn't affect our issuance directly because we are considered a safe-haven investment and therefore a preferred asset. However, investors appreciate times of stability. We have been looking at the USD market and there is quite some higher volatility because of the increased headline risk under the new government. You need a stable environment to fix a price for an oversubscribed orderbook. That´s more or less a rule in capital markets: finding favorable issuance windows. We typically have over 150 investors in the order book which remains true regardless of our status as a safe haven.
Q: How do you expect to distribute your issuance for the remainder of 2025?
A: We have issued about 20 billion in euros and about 7 billion in USD in the first quarter. Additionally, we have issued bonds in GBP, AUD and HKD, summing up to some 6 billion Euro equivalent this year. We also issued some of the Scandinavian currencies and Swiss francs for the first time in the last few years. We have the aim to end the year with roughly 20 billion in USD, or at least to come close to this number because this is a relevant number for the US and we have many investors behind our USD programme, especially international investors who actually look for alternatives to Treasury bonds - even more in these times. Given we are a euro funder, we have to see if the issuing in USD works economically for us, because most of what we raise has to be swapped back to euros and that's very volatile at the moment. Euros and US-Dollars are two strategic currencies in which we do about 80% of the overall funding. The other currencies are approached more opportunistically, meaning that our strategy depends on supply and demand dynamics, as well as our ability to secure a funding advantage over EUR funding.
Q: In December you said that, as it always does, KfW will conduct a reassessment of its liquidity needs in the middle of the year. We are only in April, but how is this reassessment going so far?
A: We are well funded so far, as I described before and when I look at the green bond market for example, we have announced an issuance of €10 billion and have delivered already €5 billion so far.
Regarding the reassessment of the disbursements, it is too early to comment on it, especially because the new coalition contract has just been released.
Q: A few weeks ago, you delivered a USD issuance due 2028. What can you say about this?
A: It was a 3-year transaction which went very well, with a USD3 billion size and a pretty tight price to Treasuries of around 8bp. With USD 7.8 billion the high quality orderbook was 2.7 times oversubscribed, marking the largest ever for a KfW 3-year USD Benchmark. In terms of geographic distribution, the bonds were primarily sold to the EMEA region (56%), followed by the Americas (26%) and Asia (18%). However, with the recent developments in the US, it is now really volatile. Given the current environment and that we want to come closer to an issuance of USD20 billion, we aim to issue more benchmark transactions, of which the size usually is around USD3-5 billion.
Q: So, you still have to deliver other transactions in USD?
A: Yes, we will issue more in USD during the year if we find the right issuance windows.
Q: Would the current environment be a good window?
A: If markets move, opportunities can arise. Depending on how swap spreads and basis swaps develop, we can offer attractive bonds and hedge them for ourselves in attractive levels. So, it must work always on both sides.
Q: So, you still have a wait-and-see approach in case any opportunities emerge?
A: Yes.
Q: Which part of your issuances would you say is more opportunistic?
A: The foreign currency issuance because we have to hedge it to exclude currency risks. I wouldn't include USD in this bucket because there we follow a strategic approach. So, with every foreign currency but the USD we need to be more opportunistic to achieve levels that make sense for us against the EUR funding costs.
Q: Opportunistic also in terms of the size and maturities of these foreign currency issuances?
A: Many of the foreign currencies are issued based on reverse inquiry. It is important to understand what investors want, and then we assess how it aligns with our overall strategy, which is guided by two key metrics: volume and duration. And all we do has to fit within these parameters. Our benchmark curve is the euro curve. For foreign currencies MTNs or smaller bonds we must be more flexible, because the volume is usually not so high for those products. In contrast, we primarily manage duration through euros and USD.
Q: In which part of the curve are you now seeing more investor demand?
A: I would say the 5-year is the deepest point of the curve. The longer end is always a slightly different investor base, such as asset managers, some bank treasuries and insurance companies, less so reserve managers. The shorter end is more dependent on monetary policy. The 5-year is the sweet spot where we can reach out to the broadest investor base.
Q: KfW is one of the largest green bond issuers worldwide and last year you marked your 10th anniversary of issuing green bonds. What should we expect from you in this market this year?
A: We have issued more than €80 billion in total since we started our green bond activities ten years ago. This year we have done €5 billion so far. We focus on euros here because this allows us to develop curves. We can monitor prices versus our euro curve because the volumes are comparable. However, we also issue in other currencies. We started the year with an AUD green bond, we have also issued a GBP green bond, and we did HKD green bonds. Last year, for the first time since 2021, we issued a USD green bond with a 10-year maturity. We are monitoring the direction in which USD green bonds are going. Given the current changes, there is no funding advantage and no basis point to be saved on USD green issuances. That’s one of the reasons why we issue our green bonds in the euro market, but especially because the share of green investors is higher than in in the USD market.
Q: Last year you issued green bonds in a number of different currencies. Do you expect this too in 2025?
A: We have already issued in six different currencies year-to-date: EUR, AUD, GBP, HKD, NOK and CNY. Is it likely that we get one or two new currencies? Yes, perhaps. At the end of the year, we could have issued in the same number of currencies as last year, so seven.
Q: Which new currencies could those be?
A: Scandinavian currencies are always an option. It’s highly likely that we issue in SEK or NOK.
Q: So, should we expect you to issue new green bonds in 2025?
A: Yes, definitely.
Q: Which tenor should we expect for this year's remaining green bond issuance?
A: Green bonds have to fit into our overall duration. Our overall duration for €65-70 billion is 5 years and the €10 billion green bond programme is a part of it. On the other hand, there is some additional limitation because of the asset pool which is put against a green bond. There we have to achieve a 7- to 8-year maturity. So maybe you can expect us to go for a 5-year, we’ll have to finetune this until then.
Q: One of the main characteristics of your strategy this year is that central register securities will become the standard of your benchmark bond issuance. Why is this?
A: Since 2021 we have the electronic securities act in Germany, which allows issuers to substitute the physical note for traditional issuances with an upload in a central register. We worked on that with the Deutsche Börse and Clearstream on their D7 platform. We have issued more than €13 billion since the beginning of January alone to the central register, including the last tap of € 3 billion. All our euro benchmark bonds will be from now on in the central register. This is a major step in terms of further digitalisation of our funding. In the medium term we will hopefully have all our bonds, including the international issues on this central register.
Q: In a press release a few months ago, you said that you were planning further digitalisation activities for 2025. Could you give us an idea of what this might be?
A: This is the second part of the Electronic Securities Act, paving the way for more innovative structures. Last year, we issued a blockchain based digital bond that involved syndicate banks to attract a broader range of investors. What we learned during the entire process is, that many investors are still unfamiliar with such bonds and although they have a great interest in the technology, they are unable to process such a blockchain bond for different reasons. Nevertheless, this initiative served as an initial touchpoint to explore the internal requirements of investors for blockchain bonds, among other aspects.
Q: Are you expecting to issue another blockchain-based digital bond?
A: We could, we will probably look again at the liability side and add some additional features like secondary market liquidity, which is important for investors.
Q: How do you expect the reform of the debt brake and higher fiscal spending in Germany to impact your issuance?
A: We have a €500 billion infrastructure package, which includes €100 billion for the states and another €100 billion for climate. This package will be financed by the German finance agency over a span of 12 years. If we break it down, it's €45-50 billion per year – an amount that is relatively modest. The finance agency also said this will not affect them in the short term. Then there’s higher defence and security spending that falls outside the debt brake, although the exact figures remain uncertain.
Our focus remains on the SME segment, and it is possible that SMEs could play a role in this increased defence expenditure, meaning we are not excluded from these developments. However, we do have strict compliance rules on how we will conduct this business. We set ourselves a responsible framework to ensure that our defence-related activities are conducted in line with KfW’s commitment to “responsible banking”. Against this background, we do not finance controversial weapons (e. g. no radioactive ammunition, no weapons of mass destruction, no cluster bombs etc.).
Q: What about the impact of US tariffs on demand for your bonds?
A: There is no direct impact on our bonds but looking at the euro market KfW benefits from its save heaven status, because investors look for safe assets. Overall, I am positive on the EUR market. It might also be possible that EUR get more support and allocations from reserve managers given the turbulences in the US.
With respect to the USD market, the fact that we are an alternative to Treasuries is also positive, and that is something especially Asian investors are looking for. If they buy our USD bonds, they get liquid USD bonds with a German risk. However, volatility in markets affects all market participants. The dynamics in spreads must work for us and for investors and we need to find good issuance windows. That is the main challenge currently.