Why are more sovereigns issuing in Euros? Choosing between USD and EUR-denominated bonds Lior David-Pur Head of Debt Management Unit Ministry of Finance, Israel Webinar The World Bank March 2018 1
Funding (issuance) Policy Local Market External Market 2
Foreign Currency Debt 100% 13% 13% 16% 14% 15% 14% 18% 20% 19% 19% 23% 25% 50% 87% 87% 84% 86% 85% 86% 81% 81% 82% 80% 77% 75% 0% Local Currency Debt Foreign Currency Debt Other EUR Debt USD Debt 100% 74% 79% 84% 84% 84% 83% 83% 84% 88% 89% 91% 50% 24% 19% 15% 15% 14% 14% 14% 14% 9% 9% 7% 0% 3 Source: MOF, Q3-2017, Other roughly 2%
Global Issuances (USD Millions) 2,380 EUR 2,070 2,000 2,050 2,000 USD 1,700 1,500 1,500 9091,000 750 413 500 500 350 250 200 168 250 4
Risk Management Policy FX Swap Without Hedging With Hedging 100% Forward 74% 68% CCS 50% 24% 20% 10% 2% 2% 0% 0% USD EUR NIS Other 1,864 1,500 USD Millions 1,000 100 500 50 29 Notional 16 - -8 MTM NIS EURO NIS CPI 5 Source: MOF, First chart - Q3-2017 , Second chart December 2016
Debt Management Framework 6
Case Study Example for Issuances (Indication) Column A Column B Column C Column D USD (%) 2018 Current EUR (%) 2017 Current Maturity 10Y Maturity 10Y Treasury 2.50 2.90 Mid-Swap 0.63 1.08 Spread 0.75 0.75* Spread 0.87 0.87* USD Coupon 3.25 3.60 EUR Coupon 1.50 1.95 Example for Hedge (Indication) USD Issuance Coupon 3.60 EUR Issuance Coupon 1.95 EUR Swap (+) 1.08 USD Swap (+) 2.90 USD Swap (-) 2.90 EUR Swap (-) 1.08 EUR Basis (+) -0.30 EUR Basis (-) -0.30 CCS EUR Coupon 1.50 CCS USD Coupon 4.07 7 Data: Bloomberg February 2018 *Simplistic assumption - same spread. In practice depends on current market and economic conditions
Case Study 2 8
To conclude 9
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