Domestic Debt Market Development in Poland Marek Szczerbak Republic of Poland Ministry of Finance Public Debt Department

Transcription

1 Domestic Debt Market Development in Poland Marek Szczerbak Republic of Poland Ministry of Finance Public Debt Department DMF Stakeholders Forum 2011 Berne, 8-9 June

2 I. Historical perspective 2

3 Developing debt management process the starting point of political and economic transformation High level of non-marketable debt, most of which seized to be serviced due to the 80-ies solvency problems 2. From 1989 transition from passive servicing to active public debt management restructuring and reducing of foreign debt: 1991 and the Paris Club the London Club establishment and development of domestic Treasury Securities market: regular Treasury Bills issuance since 1991 regular Fixed Income Treasury bonds issuance since 1994 incurring financial liabilities on international markets: first foreign bond issue

4 Main Trends 1. Domestic Market Development Investor base development (key feature pension reform in 1999) Yield curve extension Transparent Primary and Secondary Markets Development (Primary Dealers System since 2003) 2. Active Debt Management Instrument base development Debt Management Strategy Infrastructure Long-term approach to debt management 3. Risk Management 4

5 Domestic market instruments development Date first T bonds T bills year inflation-linked bonds 3-year floating rate bonds and 5 year fixed rate bonds Marketable instruments year floating rate bonds year fixed rate bonds (in response to demand of Open Pension Funds) 2001 Switching auctions year fixed rate bonds (in response to demand of insurance companies) 12-year inflation-linked bonds and 7 year floating rate bonds (WIBOR) Derivatives (first IRS transaction) 2005 First FX swap transaction year floating rate bonds (WIBOR) 30 -year fixed rate bonds year inflation-linked bonds Savings instruments and 4 year savings bonds year savings bonds 5

6 Foreign market instruments development Year Markets and tenors USD DEM EUR GBP JPY CHF 7; 10; Annotations First issuance in international markets , , 10 3, , 10 5, , 30 15, 30, 50 7, 15 5, 10 15Y Polish largest to date issue (EUR 5.25 bn) , , , ; 10; 15 3; 5 5 Samurai bonds the largest issue in the 30Y segment diversification of sources by Poland s access to the investor base in major financial markets strengthening Poland s position in the euro market deemed strategic due to the perspective of full integration under the EMU 6

7 Public Debt GDP % ,9 54, ,8 43,6 42,3 48,4 46,7 47,5 47,8 47,2 45,7 47,1 47,7 47,1 45,0 44,8 46,9 49,9 52,8 54,9 54,1 52,4 50, , Dec 2010 Public debt General government debt Liniowy 3 Public Debt by sector and by instrument Dec ,2% 67,0% 5,7% State Treasury Local government 0,5% 1,5% 7,7% Other Central Govt. Social Security PLN TS Foreign bonds 6,3% 21,0% Domestic loans and other debt Foreign loans 7

8 Debt increases in the EU Change in General Government debt-to-gdp ratios in the period (percentage points of GDP) , ,5 35,7 37, ,0 24,7 21,0 21,3 17,4 17,8 18,2 18,3 18,9 15 9,9 11,4 11,6 11,7 12,6 13,2 14,1 14,9 15,4 16, ,0 6,8 2,5 2, ,0-0,4 8 Bulgaria Sweden Cyprus Estonia Malta Czech Rep. Poland Slovakia Austria Luxembourg Belgium Finland Hungary Slovenia Italy Denmark Netherlands France Romania Germany Euro area EU Lithuania Spain Portugal UK Latvia Greece Ireland

9 State Treasury Debt 100% State Treasury debt - place of issue criterion 80% 60% 49,1% 45,3% 34,8% 33,1% 33,7% 27,6% 28,3% 26,4% 23,5% 26,3% 26,7% 27,3% 40% 20% 50,9% 54,7% 65,2% 66,9% 66,3% 72,4% 71,7% 73,6% 76,5% 73,7% 73,3% 72,7% 0% Domestic debt Foreign debt State Treasury debt currency structure Dec 1999 Dec 2010 PLN; 47,9% EUR; 16,5% USD; 25,7% Other; 9,9% PLN; 72,5% EUR; 19,8% Other; 4,1 USD; 3,6% 9

10 Refinancing risk: average term to maturity (in years) Risk parameters 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0, Domestic debt Foreign debt Total debt Interest rate risk: duration (in years) Lengthening ATM and duration 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0, Domestic debt Foreign debt Total debt 10

11 Investor base on the Domestic Market (1) State Treasury Debt by holder % 80% 60% 40% PLN bn NBP domestic non-banking sector Domestic banking sector Foreign investors Steady growth of Treasury Securities holdings by stable, long-term domestic investors Diminishing role of domestic banks and gradual increase of foreign investors share (trend halted in ) Depth of domestic investor base and huge banking sector overliquidity allows for smooth accommodation of foreign capital flows 20% 0% NBP Domestic banking sector domestic non-banking sector Foreign investors 11

12 Investor base on the Domestic Market (2) Non-banking sector financial institutions Assets under management major non-banking sector investors PLN bn Open Pension Funds Investment Funds Insurance Companies Constant increase of stable and long-term investors assets Most stable investor groups: pension funds and insurance companies Treasury bonds share in assets held by the major non-banking sector investors 80% 70% 60% 50% 40% 30% 20% 10% 0% Open Pension Funds Investment Funds Insurance Companies

13 Investor base on the Domestic Market (3) Non-residents holdings of PLN Treasury Securities % % % 80 15% 60 10% % 0 0% Holdings (PLN bn) (lhs) Share in domestic debt (%) (rhs) Inflow of foreign investors into domestic market in 2009: PLN 26bn; continued in 2010 (PLN 46bn) and 2011 (further PLN 20bn so far) Holdings of non-residents at a record high levels of approximately PLN 150bn (27% of domestic debt) Net purchases of TS by investor groups (PLN bn) Foreign investors Banks Asset managers Insurance Open Pension Funds

14 II. Debt Management Strategy 14

15 Public debt management strategy in the years (1) Objective: minimisation of the long term debt servicing costs subject to constraints on the level of: refinancing risk exchange rate risk interest rate risk State budget liquidity risk other risks, in particular credit risk and operational risk distribution of debt servicing costs over time Two aspects of the Strategy s objective: Choice of instruments Efficiency of the TS market 15

16 Public debt management strategy in the years (2) Flexible approach to the financing structure DOMESTIC FINANCING main source of financing the borrowing requirements of the budget FOREIGN FINANCING diversification of sources - access to investor base in major financial markets taking into account the foreign currency borrowing requirements strengthening Poland s position in the euro market (future domestic market) access to attractive financing in international financial institutions stabilising the domestic market flexibility in choosing markets in case of market disruptions 16

17 Public debt management strategy in the years (3) Refinancing risk DOMESTIC DEBT aiming at increasing the role of medium- and long-term instruments in financing the State budget borrowing requirements at a pace dependent on investors demand aiming at even distribution of redemptions and interest payments of domestic and foreign debt average term to maturity (ATM) reaching 4.5 years FOREIGN DEBT current level of foreign debt refinancing risk does not restrain cost minimisation objective, ATM at 8.1 at the end of

18 Public debt management strategy in the years (4) Exchange rate risk maintaining the acceptable share of foreign currency debt in total debt to the range of 20-30%, in connection with high volatility of exchange rates and flexible approach to choosing markets maintaining an effective share of the euro in foreign currency debt at 70% possible use of derivatives 18

19 Public debt management strategy in the years (5) Interest rate risk DOMESTIC DEBT maintaining duration in the range of years possible separating the management of the interest rate and refinancing risks by using floating rate bonds, inflation-linked bonds and derivatives FOREIGN DEBT current level of risk is not a constraint for cost minimisation objective, at the end of 2010 duration amounted to 5.5 years 19

20 Public debt management strategy in the years (6) Strategy s tasks 1. Increasing liquidity of the TS market Continuation of issuing medium and long term fixed rate benchmark bonds (at least EUR 5 bn) in the domestic market Large liquid issues in the euro market Adapting issuance policy to market circumstances, including demand in different segments of the TS market 2. Increasing efficiency of the TS market, including: Issuance schedule adjusted to market and budgetary circumstances Increasing the role of the participants of the Primary Dealers system Removing technical and legal obstacles Direct meetings with investors and consultations with market participants Broadening the investor base, including non-deal roadshows in the key foreign markets 3. Increasing transparency of the TS market Transparent issuance policy, including TS issuance calendars, supply plans of TS and supply offers for individual auctions Promoting the electronic market 20

21 III. Recent market developments 21

22 Strong demand for Polish bonds in 2010 and 2011 Average bid-to-cover ratio on domestic T-bonds auctions 2.4 in 2010 and 2.2 in 2011 (YTD) Average maturity of TS sold in 2010 on domestic market 5.29 years Stable average time to maturity of domestic and foreign debt 6 visits to international markets in 2010, in 2011 so far 4 Domestic T-bonds sale in 2010 and 2011 (PLN bn) International T-bonds issued in 2010 and Bid-to-cover ratios: Bid Sale EUR 3bn 15-year EUR 1.25bn 7-year CHF 150m 4-year CHF 475m 4-year USD 1.5bn 5-year EUR 1bn 10-year EUR 1bn 10-year JPY 18bn 15-year CHF 350m 5-year USD 1bn 10-year 0 2Y 5Y 10Y and above FRN (10Y) 2Y 5Y 10Y and above FRN (5Y) and CPIlinked (12Y) Jan 10 Mar 10 Mar 10 Jul 10 Jul 10 Sep 10 Jan 11 Jan 11 Feb 11 Apr 11 22

23 Safe and well-balanced financing structure Maturity breakdown of T-securities sold in 2011 in Poland and other countries (auctions and syndicates, local currency, data from Jan 2011 to Apr 2011) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Poland Germany Italy Spain UK France Netherlands USA Hungary up to 25 weeks weeks 1-5 years above 5 years 23

24 Polish T-bonds secondary market performance 5-year CDS (bps) Yields of local currency 10-year bonds (%) ` Greece Hungary Ireland Portugal Spain Italy Belgium POLAND Czech Rep. ` Slovakia Poland Germany USA UK Hungary Spread to Bunds (10Y EUR-denominated bonds, bps) Poland Slovakia Czech Rep. Greece Italy Spain Hungary ` 24

25 THANK YOU 25