Description of Topic
In January 2018, the World Bank Treasury published a paper that presents and discusses the arguments offered by several sovereigns that have joined a trend starting in 2013 whereby sovereign and corporate issuers, especially in Latin America, have gradually replaced a portion of the funding raised in U.S. dollars with euros.
The trend seems to respond to the divergent monetary policies followed by the U.S. Federal Reserve Board and the European Central Bank. The selected country cases state strategic and tactical arguments for increasing their issuance in euros.
The strategic reasons relate to internal currency benchmarks and their rationale. In some cases, such substitution is supported by the argument that further diversification in the investor base was needed. This argument was reinforced by the relatively tight conditions in the U.S. dollar market. Tactical arguments refer to the need to open the market to the private sector and raise funding in euros, or the need to access new investors as a preliminary step to attract them to the domestic market. Several countries also admit that the optical effect of lower coupons was a relevant consideration.
The paper highlights that it is important that sovereigns avoid making decisions by comparing nominal coupons in both currencies. More important, a formal debt management strategy, including a target for the currency composition, should guide debt managers. Without a strategy, the debt manager cannot tell how the issuance in a particular currency affects the exposure of the debt portfolio to foreign currency risk and helps or not in achieving the debt management objectives.
The webinar on choosing between USD and EUR-denominated bonds will discuss the findings of the paper and the experiences of debt management offices across the globe on such topic. Antonio Velandia, Lead Financial Officer at the World Bank Treasury and co-author of the paper, will share the key messages and takeaways for debt managers. Lior David-Pur, Head of the Debt Management Unit in Israel, and Roberto Lobarinhas, Head of International Market Issuances in Brazil, will present both countries’ experiences in accessing the international capital markets in different currencies. A Q&A session will provide the participants with the opportunity to discuss and share other experiences and lessons learned.