Post on 21-Jun-2020
Page 1www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
Anne LeclercqDirector Treasury and Capital Markets
Belgian Debt Agency
January 2016
Worldbank Webinar
Use of Cross Currency Swaps
in the Belgian debt portfolio
Page 2www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
Belgium’s is the
6th economy of
the Euro-zone.
Its 2014 GDP
amounted to
EUR 400.64 bn.
End 2014
Belgium’s total
debt amounted to
EUR 427.48 bn
representing
a debt/GDP ratio
of 106.7%.
Belgium is a
medium sized
issuer rated S&P: AA/A-1+
Moody’s: Aa3/P-1
Fitch: AA/F1+
Belgium: 3.32% of EA19 population,
yet 4.0% of EA19 GDP GDP
(% EA19)
Population
(millions)
Germany 28.7% 81.2
France 21.2% 66.4
Italy 16.0% 60.8
Spain 10.5% 46.4
Netherlands 6.5% 16.9
Belgium 4.0% 11.3
Austria 3.3% 8.6
Finland 2.0% 5.5
Ireland 1.8% 4.6
Greece 1.8% 10.8
Portugal 1.7% 10.4
Slovakia 0.7% 5.4
Luxembourg 0.5% 0.5
Slovenia 0.4% 2.1
Lithuania 0.4% 2.9
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 3www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
The majority of the
financing needs are
covered by a Euro
LT financing
instrument called
OLO’s. The current
outstanding amount of
OLO’s is €312 bn.
Treasury Certificates,
the Euro ST
standardised
financing
instrument,
represents only 7%
of the debt portfolio or
€ 27 bn.
Composition of the debt portfolio in figures
Standardised Instruments,
both long and short term represent 87% of
the total debt portfolio.
LT Flexible instruments or Tailor-made
instrumenst only amount to 3% or € 12 bn.
Page 4www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
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
Yearly financing strategy : set the framework
Duration, average life and implicit yield
Page 5www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
Riskparameters :
1. Refinancing and
refixing risk, as a
percentage of
total debt
2. Average life of the
debt portfolio
3. No foreign
exchange risk.
All risks should be
swapped to €.
Hence CIRS.
The average life of
the euro debt
portfolio amounts to
7.98 years, while the
duration exceeds
7 years,
yet the implicit yield
has declined to
2.85%.
This year’s target in
terms of average life
is 8 years.
12- month refinancing and refixing risk remain near their lowest level ever.
Riskparameters
0 %
5 %
10 %
15 %
20 %
25 %
30 %
35 %
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
23.48%
16.40%
7.30
7.98
2.85
0
1
2
3
4
5
6
7
8
9
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 6www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
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
Rationale for issuing tailor-made products (EMTN)
Page 7www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
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
Rationale for issuing tailor-made products
Page 8www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
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.
What is a Cross-Currency Swap ?
+ 100 Mios EUR
- 125 Mios USD EURUSD Spot)
125M x Libor 3M
100M x Euribor 3M +/- spread
+ 125 Mios USD
- 100 Mios EUR
Page 9www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
Factors of
evolution of the
EUR-USD curve
• Short part of the
curve efficiently
managed by
Central Banks.
• 2-to-4-year zone
impacted by FX
Swaps.
• 5-to-10-year
zone affected by
the ECB’s QE
program.
• 20-year+ zone
affected by:
• CSA contract
modelling,
CVA hedge
desks.
• Foreign
currency debt
issuance
(mainly in
GBP and
USD) by
European
companies.
EUR-USD Basis
-60
-50
-40
-30
-20
-10
0
3m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 11y 12y 13y 14y 15y 16y 17y 18y 19y 20y
EUR-USD spot curve
EUR USD 09/06/2014 curve
EUR-USD 04/06/2013 curve
EUR-USD curve
EUR-USD 2-year and 10-year base
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15
2Y EUR-USD 10Y EUR-USD
BCE QE
Page 10www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
Regulatory context
VOLCKER LAW
COMPENSABLE
CROSS-CURRENCY
SWAP?
NET STABLE FUNDING
RATIO
(NSFR)
LEVERAGE RATIO
Page 11www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
EMTN issuance
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.
EMTN issuance since 2008
Page 12www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
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
Issuing flexible instruments : set the framework
Page 13www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
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
Issuing flexible instruments: monitor the market
Page 14www.debtagency.be Kingdom of Belgium - Federal Public Service FINANCE - Treasury - Debt Agency
Thank you for your participation.
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