Kangaroos hold rock steady role in SSA funding despite ever-changing market

Some of the world’s leading issuers from the supranational, sovereign and agency sector took part in a virtual discussion about funding conditions and issuance approaches in mid-2023. The borrowers tell KangaNews the Kangaroo market has an increasingly structural role in their funding plans despite ever-changing demand dynamics. The New Zealand market, meanwhile, is facing up to a major regulatory risk event.

  • Ann-Marie Ahlén Fihlman Director, Funding SWEDISH EXPORT CREDIT CORPORATION
  • Lars Ainsley Senior Funding Manager KFW BANKENGRUPPE
  • Marcin Bill Head of Funding, Asia Pacific INTERNATIONAL FINANCE CORPORATION
  • Andrea Dore Lead Financial Officer and Head of Funding
  • Stefan Goebel Treasurer RENTENBANK
  • Jorge Grasa Senior Funding Officer EUROPEAN INVESTMENT BANK
  • Jens Hellerup Head of Funding and Investor Relations NORDIC INVESTMENT BANK
  • Mascha Ketting Senior Funding Officer BNG BANK
  • Sven Lautenschläger International Funding Officer L-BANK
  • Evan Morgan Senior Vice President, International Funding KOMMUNALBANKEN NORWAY
  • Frank Richter Head of Investor Relations NRW.BANK
  • Joanna Tipler Staff Writer KANGANEWS

Tipler How has Kangaroo bond distribution changed over the past 12 months, including domestic Australian takeup, the makeup of global distribution and the breadth of distribution?

DORE Last year we were not active in the Kangaroo market at all. When interest rates started to increase, there was less demand for longer-maturity bonds. This resulted in a lot of short-dated transactions in the Kangaroo market. The pricing worked but, due to internal ALM [asset-liability management] requirements, we were focused on medium- and long-term maturities. Had we been involved, I would have expected to see an increased proportion of official institutions and asset managers in these short-maturity trades.

This year, we have been more active in the Kangaroo market thanks to increased demand for longer maturities. We have issued just shy of A$3 billion (US$2 billion) in maturities between five and 10 years, which is a record.

Over time, we have observed an evolution in the distribution of Kangaroo bonds with regard to investor type. For example, this year we saw a decline in participation from asset managers. Our A$1.5 billion five-year Kangaroo issued in January this year went to bank treasuries, at 48 per cent, and an equal percentage each to official institutions and asset managers: 26 per cent. For our previous five-year, asset managers accounted for more than 50 per cent.

We have also experienced an increase in the amount of bonds being placed with offshore investors. About one-third of our recent five-year bond was placed with domestic investors and two-thirds with offshore investors.

In addition, more investors are getting involved. Our latest five-year Kangaroo bond had more than 50 orders, whereas a few years ago we would regard just 20 investors in a transaction in this market as a tremendous achievement.

In the case of longer-maturity bonds, we have not seen a lot of changes in the investor makeup. Our recent 10-year bond was heavily distributed into Asia, particularly to life insurance companies.

BILL The year finishing in June 2023 was a record for IFC [International Finance Corporation] in the Kangaroo market as we issued north of A$5 billion. We saw pickup in onshore demand as well as offshore accounts seeking Australian dollar exposures.

Overall, the offshore distribution of our bonds increased relative to our previous fiscal year. We took advantage of this because it was also accompanied by a cross-currency basis-swap advantage from a US dollar-based issuer’s standpoint.

In this last fiscal year we introduced two new lines to our Kangaroo curve and executed several re-openings. Some of these deals were sizeable, including our first green bond, for A$900 million, but we also completed quite a few smaller re-openings.

In the Kauri market, we issued almost NZ$1 billion (US$616.3 million) in the year to 30 June. We established two new lines including our first social bond in New Zealand.

“It was positive to see demand for 3-4 year issuance available even during the most challenging months of late 2022. We note that our November 2022 Kangaroo deal preceded US dollar supply following the credit scare in October 2022, which speaks well of the depth of the Australian dollar market.”

KETTING It is different for BNG Bank in that we have seen an increase in domestic take-up of our bonds and domestic investors’ engagement with the SSA [supranational, sovereign and agency] sector overall. This is particularly after last year, when domestic participation was quite uncertain given a lack of conviction and confidence from investors.

Distribution has been broad. There have also been a couple of large central bank and official institution accounts participating in size in the SSA space and in BNG bonds. This participation is clearly driven by an overall view of Australian dollars, but also because we deliver attractive spreads relative to government and semi-government bonds in Australia.

So far this year, we have issued a little more than A$500 million in the Kangaroo market, compared with around A$700 million per year in 2021 and 2022, and record volume in excess of A$1 billion in 2020. We have been a very consistent issuer. Our strategy has always been, and remains, to launch a line and grow it via a series of taps so it reaches sufficient size to be large and liquid.

AINSLEY Our share of domestic participation is also substantially higher than in past years. This change is a factor of relative value – which is much more attractive when it comes to spreads versus semis and governments.

Other factors have boosted the market, too, including very large redemptions and improved sentiment as more clarity has emerged on the trajectory of interest rates in Australia.

MORGAN Comparing the books of our two most relevant Australian dollar trades – the five-year benchmarks we completed in January 2022 and January 2023 – the distribution is relatively similar and book sizes were comparable. In 2023, we had 29 separate orders versus 30 in 2022.

The main difference was that we saw less participation from Asian and European bank treasuries this year compared with last, and a higher participation of domestic real-money accounts. Domestic participation increased to more than 47 per cent in 2023 from 30 per cent in 2022.

Ascribing a reason for this, it would make sense to point to the spread versus ACGBs [Australian Commonwealth government bonds] and semis in 2022 versus 2023. In 2022, we priced around 50 basis points over the ACGB and in 2023 it was closer to 95.

“KBN benchmarks back to US dollars and we have noticed that pricing in the Australian dollar market has been quite competitive over the past year or so, while also showing quite a lot of depth of demand.”

HELLERUP We have also experienced increased domestic participation in Kangaroo deals from 2022 to 2023. Regarding the type of investors, central banks have gone down on a relative basis, with asset managers and bank treasuries taking up the difference.

I agree that the main reason for increased domestic investor participation is the SSAs offering more attractive spreads versus ACGBs. The increase in bank treasury investors mainly comes from Asian treasuries, which have been attracted by higher yield.

AHLÉN FIHLMAN SEK [Swedish Export Credit Corporation] updated its Australian MTN programme late last year. This enabled us to regain access to the Kangaroo market. Following extensive investor engagement, SEK returned to the Australian dollar market in May this year for the first time since 2018.

The latest transaction gained the largest orderbook we have had for a Kangaroo trade to date, with close to 30 investors participating. We were particularly pleased to see good demand from domestic accounts, which accounted for one-quarter of the book. Our investor base back in 2018, and prior to that, was situated more in Japan – largely because our most usual tenor at the time was 10 years.

GRASA There was a wider variety of investors participating in EIB [European Investment Bank]’s transactions at the beginning of 2023, while there has been a bit more concentration in the latest ones.

As in previous years, onshore participation increases when we issue either a Climate Awareness Bond (CAB) or Sustainability Awareness Bond (SAB). This said, overall we have not noticed any meaningful difference in the distribution of EIB’s transactions in the Australian dollar market.

LAUTENSCHLÄGER We have not issued in the Australian market since February last year so it is difficult to judge. I hear some non-domestic buyers have come back, in line with the higher interest rate – because the market looks more interesting than before from an absolute yield perspective.

But from our own experience, unfortunately, we can’t really say there have been significant changes. Our trades have always been driven by non-Australian demand, so in our view distribution probably would not have changed even if we had issued.

“The market has been extremely deep and incredibly liquid in the 3-5 year part of the curve. We have also experienced growing numbers of investors and found new ones. To still find new investors after being active for so long is always a great story and shows that the market is very robust.”


Tipler Available tenor in the Kangaroo market has shortened significantly since 2022, with most benchmark deals now coming at five-or even three-year tenor. Does this match experiences in other markets and does it reduce the value proposition of Australian dollar issuance?

AINSLEY We have certainly seen this trend, not just in Australian dollars but in other markets as well. The trend is unsurprising given monetary policy uncertainty globally – and specifically in Australia, some parts of Europe and the US. Interest rate hikes and associated risks have caused investors to focus on the short-to-medium part of the curve.

Shorter tenor preferences have not been detrimental to the Kangaroo market, though: 2023 has been one of the highest volume issuance years in the history of our Kangaroo programme. Therefore, I cannot see any downside to this development. The market has been extremely deep and incredibly liquid in the 3-5 year part of the curve, with the latter historically a sweet spot in the market.

We have also experienced growing numbers of investors and found new ones. To still find new investors after being active for so long is always a great story and shows that the market is very robust.

If it becomes clear that central banks have taken a pause, interest rates will stabilise and I would expect to see more demand for issuance at five years or longer.

AHLÉN FIHLMAN I agree that the Kangaroo market has shifted focus toward 3-5 year tenors from 10-year tenor, which was most used when SEK was last active in the market and ahead of our latest deal in May this year. However, the shortening in tenor has actually improved the value of issuing in Australian dollars to us because our sweet spot for funding is generally in the 2-5 year segment.

When looking at our experiences in other markets, we have noticed slightly larger demand for tenors up to seven years in some of them – but this of course varies over time. Overall, the shift to shorter tenor is a good thing for us because it is better suited to our funding needs.

DORE Shorter duration is a reality globally. In the low rates environment, investors needed duration to get a yield pickup. As rates increased, the situation reversed. There is still a core set of investors that needs duration regardless of where yields are, due to the nature of their balance sheets. But in general the preference has shifted.

This trend has been evident in all our markets, but New Zealand is a notable example. The NZ$950 million (US$585.5 million) three-year Kauri Sustainable Development Bond
(SDB) we priced in June is the first short-dated trade we have ever done in this market, and it received significant uptake.

Over the past couple of years, for ALM reasons, we focused on issuing medium- and longer-term maturity bonds with the aim of smoothing our bond redemption profile. As a result, in 2021 and 2022 we completed more than 70 per cent of our funding with maturities greater than five years and we were able to move the profile of our borrowings for those years to close to nine years, which is almost double what it was a few years ago.

This year, we have not needed to be as restrictive since we have had more capacity for short-dated trades, which is why we were able to print our recent Kauri three year. But this does not mean we can issue a significant amount of this type of short-dated bonds – we do not want to reverse the work we have done on duration extension.

It is important for us to find a balance. We want to respond to where investor demand is, but we also need to be mindful of our internal ALM requirements.

“During our investor meetings in March, there was a strong focus on green topics particularly among Australian investors. On the other hand, in some markets – like Swedish krona – the green label is almost a prerequisite for a deal. This is not the case for either Kauris or Kangaroos.”

RICHTER For NRW.BANK, it is important to meet the overall duration of our funding requirement and we can very easily compensate shorter tenor in Australia with the longer tenor of the euro market. We recently issued a 10-year social bond and a seven-year green bond in euros, helping us generate duration for our funding needs. This allowed us to issue at shorter tenor in the Kangaroo market.

The US dollar market has also shortened up: three years is the sweet spot and five years is already too long. The investor base is very risk averse and has shortened its duration significantly. Some investors have even exited fixed income and moved into sub-one-year money markets.

There is still an indication of demand for duration in the euro market but even this is shorter than where it was two or three years ago, when ultra-long 50-, 70- and even 100-year bonds were possible.

GOEBEL Developments in the US dollar and sterling markets are very similar and the Kauri market is most active in three years, too. Euros still offers issuing opportunities across the curve with good depth and breadth of demand. Swiss francs looks increasingly promising for longer duration, too.

Sources of affordable 10-year funding are certainly particularly attractive for us and the Kangaroo market has treated us very well in this respect for a very long time. However, 3-7 year funding is part of our mix as well. We are still in an environment of globally rising interest rates and central banks are in a tough spot fighting inflation. We are confident that 10-year demand will strengthen again once market participants get a better handle on the rates cycle.

BILL It has been quite a tumultuous couple of years in the context of desired maturity. For a few months following the onset of rate increases in 2022, we observed limited demand for longer-dated securities. A three-year bond was a safer play while rates were rising.

However, as the hiking cycle – arguably – draws to an end and with further hikes discounted, investors are increasingly seeking longer-duration exposure. I expect appetite for duration will continue as the fight with inflation affects growth expectations.

In Australian dollars, long-end demand was predominantly a function of the Japanese bid. Earlier in 2022, we increased our 14-year social bond and this transaction was mostly placed into Japan. This demand disappeared toward the end of 2022 and then re-emerged at the beginning of 2023.

Otherwise, we have seen interest vary between the three-and seven-year maturity space due to investors waiting for the right re-entry point based on the RBA [Reserve Bank of Australia]’s rate-hiking cycle and rhetoric.

Nevertheless, it was positive to see demand for 3-4 year issuance available even during the most challenging months of late 2022. This makes the Kangaroo market deeper and easier for issuers to satisfy their borrowing needs as well as to supply paper with somewhat wider spread versus government securities.

We note that our November 2022 Kangaroo deal preceded US dollar supply following the credit scare in October 2022, which speaks well of the depth of the Australian dollar market.

GRASA We have not noticed a shortening trend: except for a small tap of our August 2026 line at the beginning of the year, all our issuance has been in tenors longer than five years.

New issuance has been very well supported by investors so far this year. This is very similar to other markets, where EIB has been able to issue successful trades in longer tenors. For example, the bank has done benchmark transactions in seven-and 10-year maturities in US dollars and euros, with record orderbooks.

KETTING The most liquid point of the Australian curve
has always been five years. Long-end interest has slowed but this creates opportunities in other parts of the curve. We see investors that are willing to extend into five, or sometimes six or seven, years from three years.

There is uncertainty from the investors that most actively participate at 10 years – from Japan – and supply has been infrequent. This might pick up when more clarity emerges about the end of the RBA’s hiking cycle.

We are currently active mainly in the longer end of the curve, building on the success of our A$500 million, 10.5-year sustainability bond – which has since been tapped and is close to A$1 billion.

“Shorter duration is a reality globally. In the low rates environment, investors needed duration to get a yield pickup. As rates increased, the situation reversed. There is still a core set of investors that needs duration regardless of where yields are, due to the nature of their balance sheets. But in general the preference has shifted.”

MORGAN For KBN [Kommunalbanken Norway], 3-5 years are our target maturities so a focus on shorter duration in the Kangaroo market by no means reduces the value of our Australian dollar issuance.

We have been more active in the three-year part of the curve than historically, but we view the Kangaroo market as a strategic jurisdiction that provides valuable diversification. KBN is a relatively rare issuer of 10-year US dollar and euro benchmarks, but I would say the Australian market matches our experience elsewhere. It certainly became more challenging to issue beyond five years in the US dollar market over the course of 2022.

HELLERUP NIB [Nordic Investment Bank]’s average funding duration has for decades been 4-5 years, which is aligned with what we have on the asset side – so I cannot say we have seen a big difference. It is probably correct that it has been more challenging to fund in the long end in the euro market, but as we only fund 10-15 per cent in euros we do not have any issue here.

LAUTENSCHLÄGER Another trend toward shorter maturities is visible in the CP market, where we have seen a significant reduction in duration in line with the interest rate hiking cycle. Investors tend to be very short: what was three- and six-month CP buying is now down to a week. Investors want maturity dates just before central bank decisions, just to not be caught on the wrong foot.

The same thing is also very obvious in the long-term market. Investors have decided to take the shortest tenor they can buy according to their investment guidelines. This year, we issued a larger one-year transaction for the first time in the US dollar market, which was also mainly driven by curve inversion. Investors are looking for the highest point in the curve, which is currently in the very short end.

“Demand for the GSS product has been robust in Australia this year, with most Kangaroo transactions coming in this format. Labelled bond issuance is perceived to be more liquid, which can create increased demand. The number of accounts in books is often greater and ticket sizes larger.”

Tipler How have Australian dollar deals stacked up on pricing compared with global benchmark issuance options over the past 12 months?How much variation in competitiveness has there been over this period?

GOEBEL We have already raised A$1.2 billion in 2023, in seven transactions covering maturities from three to seven years. This is a far cry from our record volume but a very good outcome in the context of recent years.

The variation in competitiveness has mainly come from a price component that is out of our control or that of the Australian market: the cross-currency basis swap from US dollars into euros. This is never easy to navigate but we believe the Kangaroo market will continue to be a cost-effective funding source over the coming months.

RICHTER Currently, Australian dollars is the most expensive market, taking into account the cost to swap the funding back to euros. However, we will pay up a couple of basis points to issue Kangaroo bonds because of the diversification benefit they bring. We have communicated to investors over many years that we are committed to the Kangaroo market – and this means issuing regularly, even if it is a little more expensive for us to do so. Our approach is not opportunistic.

BILL Our experience is very different: the Australian dollar market has been the most attractive public market over the past 12 months or more. Pricing is at comparatively attractive levels relative to US dollars as well as – due to a favorable cross-currency basis swap – all other funding markets available to IFC this fiscal year.

We have been able to source tightly priced funding not only thanks to a relatively attractive Australian dollar market but also because of our approach of reopening existing public lines by responding to reverse enquiry from investors.

“Another trend toward shorter maturities is visible in the CP market, where we have seen a significant reduction in duration in line with the interest rate hike cycle. Investors tend to be very short: what was three- and six-month CP buying is now down to a week."

MORGAN KBN benchmarks back to US dollars and we have noticed that pricing in the Australian dollar market has been quite competitive over the past year or so, while also showing quite a lot of depth of demand.

DORE World Bank is also a US dollar-based issuer, so to execute a trade in the Kangaroo market the pricing must not leave us worse off when we swap back to US dollars when compared to US dollar funding.

This year, pricing has been very competitive in the Australian market – either in line with or in some cases more competitive than what we could achieve in US dollars. We have been able to achieve our largest volume of Kangaroo issuance in more than five years.

GRASA Pricing in the Australian dollar market has remained competitive compared with EIB’s core currencies and the bank has issued almost A$3 billion for the year to date, nearly equivalent to the entire volume from 2022. EIB expects to have further opportunities in the second half of the year, although volume will decrease as we have completed more than 75 per cent of the funding programme for 2023.

AINSLEY Compared with our benchmark curve in euros, the Australian dollar has become increasingly competitive and attractive since the end of last year. Pricing has improved significantly in the past 12 months, mainly due to the favourable cross-currency basis swap driven by higher levels of offshore funding by the Australian major banks. This dynamic is not always in play; in recent years it has been considerably more challenging to find an issuance window where pricing also stacked up.

“Our funding team sees extensive demand for labelled bonds across all markets and we would love to issue even more. SEK has a strategy to encourage and enhance labelled financing to the industries and companies we lend to. This will ultimately improve the future for generations to come.”

AHLÉN FIHLMAN As a result of our increased funding needs, we have been more frequent – and completed slightly larger benchmark trades – in the US and euro markets over the past year. The actual blend between our core currencies – US dollars, euros and Swedish krona – is a key factor for us when discussing future trades, as well as the relative cost. Noncore markets not only bring a good blend to our funding but also diversification of investors, which we appreciate and believe is necessary.

HELLERUP The primary reason NIB is active in the Kangaroo and Kauri markets is to get diversification. Our main funding currency is US dollars, which has been pretty good this year from a cost perspective. This means other public markets have at best been in line with the US dollar benchmark market.

Naturally, there is also a limit to how much we want and can pay up to get diversification. For the last couple of years, we have been happy to have been able to bring new benchmark points to our Australian and New Zealand dollar curves.

Tipler Otherwise, how has issuers’ funding mix played out over the past year – specifically the blend of core currencies and use of noncore markets? What have been the drivers of currency diversity?

MORGAN Over the past year we have managed to issue about 35 per cent of our funding outside the core US dollar and euro markets. This is a very pleasing result as we actively try to diversify our funding programme. Having the flexibility to react to market movements and continuing to pursue a broad and active investor relations programme has definitely helped us.

AINSLEY Our core market is, and will remain, euros – at 60-70 per cent of our overall programme. Generally, the US dollar market is a bit more challenging. This is not just the case for us but also for other issuers, reflected in reduced issuance during the past 6-12 months. The proportion of total issuance outstanding in US dollars has declined compared with former years, along with sterling – which has also been challenged by a very volatile market backdrop. On the other hand, our Australian dollar share has increased materially – especially during the past few months.

LAUTENSCHLÄGER We have seen a bit of a reduction in the noncore market: we have been more active in US dollars and euros, and a bit of sterling, but not so much in the likes of Australian and New Zealand dollars. Last year, and up to now, has seen a little less diversification – maybe one or two currencies fewer than then in previous years.

HELLERUP The main difference in our funding mix for this year compared to last is that we have seen much less demand for private placements – mainly in euros and US dollars, but also in emerging-market currencies. Last year, we did more than 110 deals but so far this year we have only done 24 funding transactions.

I think the main reason for reduced private placement demand in euros and US dollars is higher yield. When yield was low, investors were buying private placements with embedded call options where the investor sold an option and enhanced yield with the call premium.

With higher and more attractive yields, this yield enhancement feature is not needed anymore and investors have been keen to buy more liquid public bonds. For this reason, NIB has been active in the public US dollar, euro, sterling, Australian and New Zealand dollar, Norewegian krone and Swiss franc markets this year.

KETTING We are one of the largest issuers in Netherlands with an annual funding programme of €15-17 billion (US$16.3-18.5 billion). This year, we have already issued in sterling, Australian dollars, Swiss francs, euros and US dollars. It is very important for us to maintain access to funding across markets, for diversification purposes.

For many years, the Australian dollar has ranked in our top five, or even in our top three, currencies of funding issuance. The market is very important to us especially because it allows us access to real diversification of investors, and because it consistently offers opportunities at the long end.

We depend on capital and money markets to make sure we can deliver our clients in the Dutch public funding sector favourable funding levels for our lending programme. Given we don’t have retail clients or deposits, we very much rely on diversification for access to funding.

The Australian market consistently delivers opportunities in the long end. Our clients have been increasing their average duration so it suits us to be able to match this with longer funding from the Kangaroo market. For each transaction, we must find the balance between investor and issuer needs, and also what we can deliver to our clients.

In the past year we returned to the Swiss franc market after a nine-year absence and to the Canadian dollar market after eight years. We are always seeking opportunities to add value and globally distribute our bonds, to limit execution risk and provide our clients with the funding they need.

GOEBEL We had covered 67 per cent of our 2023 borrowing task by early June – €7.4 billion out of €11 billion. We are happy with the progress of our funding but it is notable that we have only issued in three different currencies in 2023: euro for 65 per cent, the US dollar at 25 per cent and Australian dollars taking the balance.

Other currencies in our regular funding mix either do not work from a pricing perspective at all – for instance Norwegian krone and Swedish krona – or only work in maturities up to three years, where we have very limited funding needs. This applies to sterling and New Zealand dollars.

GRASA EIB’s funding mix has remained stable in recent years, with core currencies – euro and US dollar – representing roughly 80-85 per cent of the total funding programme.

The rest has been in other markets such as Australian dollars, sterling, Polish zloty and Canadian dollars, among others.

RICHTER There was a lot of uncertainty in markets last year based on geopolitical conflicts. High energy prices, rising inflation and changing monetary policy brought high volatility to fixed-income markets. This changed our currency mix: last year, around 85 per cent of our funding was in euros and the remainder in US dollars and sterling.

In 2023, our funding mix is more international. We have issued around €6 billion equivalent in the year to date with around 25 per cent in foreign currencies. This is largely US dollars but also includes Australian dollars.

We have six months of our funding year left and hope to return to the US dollar and Kangaroo markets. We are able and ready to do more, either by tapping an outstanding line or introducing a new one.

DORE We have issued in more than 20 currencies this year including all our core markets, except for sterling. This has not been because of demand, but because of pricing. We have not been able to get a window that provides a price that is comparable to US dollars. However, sterling is a market that remains important to us.

This year, US dollars accounted for two-thirds of our funding. This market has shown increased depth and we have been able to do significantly sized transactions, for example multiple US$5 billion seven-year and 10-year trades. This was not possible a few years ago – the market did not always have this depth in longer maturities.

The euro market has also been a focus. It is a natural source of duration. Last year, we issued a 25-year maturity and the year before we issued a 40-year trade.

Canada is another market we have been active in – at the start of the year, we did a C$1 billion (US$759.4 million) trade before returning to the market recently to tap the same line. Additionally, we have been active in Scandinavian and emerging markets currencies.

Issuing in multiple currencies is important for the diversification of our sources of funding. For example, most investors in Australia and New Zealand only buy Australian dollar or New Zealand dollar bonds – so issuing bonds in these currencies gives us access to those investors.

Tipler Are there any other developments in global funding markets that issuers have been working on?

DORE Another focus for us this year has been the LIBOR transition. This does not affect Australia, but it does affect a large proportion of our portfolio. As part of this work, we recently did an exchange offer to give investors in predominately retail transactions an opportunity to exchange LIBOR-linked bonds to the new reference rate. These bonds had been issued before the LIBOR discussion started so they did not have any of the fallback language that would allow for transition to the new index.

This was a significant undertaking since it can be very hard to locate where retail bonds are held, so we engaged an agency to help us identify bondholders. In the end, we were able to exchange more than 40 per cent of the bonds and reached more than 1,000 retail investors. The idea was to offer investors additional service and flexibility. We always strive to be as responsive and flexible as possible for investors.


The Reserve Bank of New Zealand (RBNZ) is reviewing the local regime for banking sector liquid assets, and its proposed treatment of Kauri bonds may make them a less appealing hold for asset-liability management books. The prospect of reduced participation from banks is a significant risk for the sector as a whole.

TIPLER The Kauri market has been challenged this year as investors have responded with caution to the RBNZ’s liquidity review. How closely have issuers been monitoring developments?

GOEBEL We are following the developments quite closely. According to the RBNZ’s second consultation paper, the Kauri market accounted for roughly 11 per cent of total primary liquid assets (TPLA) about a year ago. All Kauri issuers attract a sizeable, globally diversified investor base, which could very well pick up Kauri bonds in times of liquidity stress in the New Zealand banking sector. In my view, this adds excellent diversification to the composition of TPLA, which otherwise has a strong focus on domestic investors.

I understand domestic banks have made this point with the RBNZ during consultation, and hope and trust this will positively influence the ultimate outcome. Until then, the current preference for three-year maturities in the Kauri market will likely persist.


There is no doubt the banks' liquidity is an important part of our Kauri deals. I think we would still be able to issue in the Kauri market without the bank treasury bid, but deal size would be smaller.


Tipler Will green, social and sustainability (GSS) bonds continue to be an important part of the Kangaroo and Kauri markets? How does the demand for labelled issuance compare with that for vanilla bonds?

DORE We expect labelled issuance to increase. World Bank was the first issuer to use labelled bonds. We have had a big emphasis on impact reporting and being transparent from the outset. We use labelled bonds to highlight the work we do, whether it be on climate, biodiversity, clean water, gender, education, health or road safety. As a development institution, we finance projects globally and our focus is on having a positive impact.

While we have a strong focus on climate, we recognise climate and social go together – which is why we are taking a holistic approach and using our SDB label to highlight our entire balance sheet.

This is a trend we have seen accelerate, to the extent that other issuers and investors are starting to do the same. They are beginning to consider the whole balance sheet and to be transparent about everything they finance, rather than just issuing use-of-proceeds (UOP) bonds that support a limited portion of their activities.

We expect this trend will continue because investors are interested in the issuer overall, as well as impact. We will continue to use themes to highlight the work we do across our portfolio.

GRASA Demand is increasing amid the growing recognition that these instruments can be structured to enhance the accountability of sustainable finance for real – not just labelled as such.

New Zealand has recently issued its first sovereign green bond and Australia has just announced preparations for its inaugural issue next year. Both countries are also part of the International Platform on Sustainable Finance, which aims to facilitate cross-border sustainable capital flows – notably by creating more comparability between different taxonomies.

We have drawn local investors’ attention to the increasing policy value of UOP bonds since the inception of the EU taxonomy regulation in 2020. EIB’s strategy of gradual alignment with the upcoming EU Green Bond Standard has delivered results and gained credibility over time, generating strong demand and relative performance for our CABs and SABs in primary and secondary markets.

This is apparent in Australian dollars, where our issues opened the market and were awarded KangaNews’s SSA Kangaroo Deal of the Year in 2021 and 2022. In New Zealand dollars, we have tapped demand exclusively in this format since 2021.

KETTING I expect robust demand for our ESG [environmental, social and governance] bonds to continue. ESG is a key focus for investors as the market evolves, as we discovered in our meetings in Australia earlier in 2023.

Demand for GSS product has been robust in Australia this year, with most Kangaroo transactions coming in this format. Labelled bond issuance is perceived to be more liquid, which can create increased demand. The number of accounts in books is often greater and ticket sizes larger when we issue with a label.

RICHTER The GSS market continues to grow in significance and our issuance pattern reflects this. In 2017, GSS issuance made up about 5 per cent of our funding volume. Last year, this rose to 25 per cent – and I expect this ratio to be a third in future.

The euro market is in focus, with a lot of regulation coming from the European Commission to ensure we are carbon neutral by 2050. This will trigger the need for environmentally friendly investments, which NRW.BANK could issue green bonds to finance. Social bonds are also very important. It is not only about “E” in the ESG world. Social issues matter.

Investors require transparency and Australia is at the forefront of this evolution – and is therefore our second most important market in this regard. This is why our recent Kangaroo bond was in social format. It also helps achieve greater investor participation in a transaction and gives confidence to investment banks to lead our deals, as they face reduced execution risk.

AINSLEY Our experience with green bonds this year and last has been extremely positive. Where we have added new investors to our books it has been via our green-bond issuance, from investors with dedicated green-bond portfolios.

The Australian dollar market has been somewhat slower than others in this respect, but we are seeing improvement at the margin. We achieve more granular books in our Kangaroo green-bond issuance. Investor feedback is that green bonds are in high demand, and I think this will continue to grow over the next few years.

I am extremely pleased that we have already issued a Kangaroo green bond this year – in the form of a A$650 million five-year deal priced in May. KfW [Bankengruppe] focuses on green bonds, so we will not issue other types of labelled bonds any time soon. With this focus, we aim to strengthen our green-bond framework and add more loan programmes to it, to enhance our available assets.

Providing a high degree of transparency is key, and I believe we have provided this. We are working hard to increase our green-bond programme and this will hopefully lead to us issuing more green bonds in Kangaroo format.

“With less uncertainty, the GSS market can kick-start a broader clarification process, fostering efficient pricing of all investment alternatives. Comparable evidence on the use of funds is becoming a requirement for labelling, and similar developments are emerging all over the globe.”

BILL We expect demand for GSS bonds will increase but also for issuers to be under greater scrutiny and to be more transparent from a whole-of-issuer ESG perspective.

There is a growing number of dedicated funds with an interest in thematic bonds, globally and in Australasia. There is emerging evidence of secondary-market outperformance of some GSS bonds on the back of this marginal demand. This demand can also help drive primary pricing marginally tighter.

IFC will continue to supply thematic bonds into the Kauri and Kangaroo markets. The format will depend on the pipeline of available assets for our green and social bonds.

MORGAN Although we have yet to issue a GSS bond in the Kauri market, KBN has issued green bonds in the Kangaroo market since 2018. We expect GSS issuance will continue to be an important part of both markets.

Regarding demand dynamics, pricing generally tends to be in line with vanilla bonds but we typically experience higher levels of engagement from accounts and larger orderbooks, which helps with price tension. As our green lending is expected to grow to 20 per cent of the total over the next few years, from 13 per cent in 2022, we will remain active issuers of green and vanilla bonds in these markets.

GOEBEL We issued a A$500 million green bond in 2021 and got good response from dedicated green investors. During our investor meetings in March, there was strong focus on green topics, particularly among Australian investors.

On the other hand, in some markets – like Swedish krona – the green label is almost a prerequisite for a deal. This is not the case for either Kauris or Kangaroos and we don’t expect things to change any time soon.

AHLÉN FIHLMAN I think GSS bonds will continue to be an important part of the Kangaroo and Kauri markets, as well as many others, as the knowledge of and subsequent interest in these bonds is increasing at a steady pace throughout the world.

Our funding team sees extensive demand for labelled bonds across all markets and we would love to issue even more. SEK has a strategy to encourage and enhance labelled financing to the industries and companies we lend to. This will ultimately improve the future for generations to come.

Japanese Kangaroo retreat yet to eventuate

Interest rate normalisation in Japan was in some quarters expected to presage a retreat of Japanese funds from global markets, including Kangaroo bonds. While the long-dated Japanese bid has eased, issuers say there is no sign of a wide-scale dispersal of demand.

TIPLER As recently as a few months ago, the idea of Japanese investors repatriating funds to yen- denominated assets was a significant talking point and fear factor, yet this does not seem to have played out to the extent some feared. How active are Japanese buyers in foreign currencies and Australian dollars in particular?

KETTING I think these expectations were misaligned. We have observed a severe slowdown in Japan, but not to the extent that there was a liquidation of bonds – as was feared. The Australian dollar still has a sensible carry profile, unlike US dollars. However, the US is a deeper market with greater capacity to absorb interest. We continue to see Japanese buyers in our books across currencies, including in euros and US and Australian dollars.


It appears that we are close to a pivot point in the global central bank hiking cycle, which should bring about more appetite for duration. As such, we hope to see a resurgence in appetite from Japanese accounts for our longer-dated bonds.


Tipler The sustainable bond market is constantly evolving, which more often than not means increasing the rigour with which issuers and transactions are being scrutinised. The market’s focus on strong and comparable impact reporting is a particular topic of attention in this regard. Is this apparent in the SSA sector, and have issuers’ programmes evolved in response?

LAUTENSCHLÄGER We officially launched our L-ESG framework in April. By communicating the programme and highlighting it during transactions, we are seeing a significant increase in participation from sustainable-bond investors. Because our bonds are not labelled, only by explaining exactly what we are doing can investors understand our overall sustainable approach.

This proves to us that investors are more interested in detailed explanations of a business model and overall balance sheet distribution than on ring-fenced assets pooled in labelled bonds.

GOEBEL We finalised the update of our green-bond framework in May and it is now aligned with the 2021 ICMA [International Capital Market Association] Green Bond Principles (GBPs). We included bio-gas into the portfolio of eligible green loans, so our green bonds now fund loans for investments in the production, storage and distribution of wind, solar and bio-gas energy. 

We also got an updated second-party opinion from CICERO [now called Shades of Green, part of S&P Global], which continues to rate our framework as “dark green”. 

We had strong emphasis on a transparent external impact report in 2020 when we set up the framework and hence anticipated the recent trends in our setup.

AINSLEY KfW has been issuing green bonds since 2014. We have committed to issuing at least €10 billion equivalent in the green-bond space in 2023 and, with green bonds issued in euros and Australian dollars, we are well on track to achieve this. We hope to continue to grow the programme and to become an even larger issuer of green bonds.

Regarding impact reporting, we are working on reporting not only on our green bonds but also on our vanilla bonds. Ultimately, we should be able to report the impact of each bond issue regardless of whether it is vanilla or green.

The major challenge is that it is difficult to roadmap – it will take at least a few years. To be able to create these reports and guarantee transparency requires sufficient data quality.

As KfW finances many projects around the globe it can be difficult to get the same data quality for every loan programme. Nevertheless, we are progressing toward our ultimate goal of providing transparency for the entire loan book.

GRASA In Europe, the regulatory and supervisory framework is rapidly evolving toward a single classification for economic activities that contribute substantially to EU sustainability objectives. This is a condition for fair competition and effective collection of information along the investment chain.

With less uncertainty, the GSS market can kick-start a broader clarification process, fostering efficient pricing of all investment options. Comparable evidence on the use of funds is becoming a requirement for labelling, and similar developments are emerging all over the globe.

Our own progress in this field is reflected in the annual updates of the CAB and SAB Frameworks, audited with reasonable assurance under ISAE [International Standard on Assurance Engagements] 3000 by KPMG. In the latest edition, we extended the comparison of CAB criteria for substantial contribution with the EC Climate Taxonomy Delegated Act of January 2022, closing gaps for all allocations in scope. We also published a detailed comparison of our environmental and social standards with the articles on “do no significant harm” and “minimum safeguards” in the taxonomy regulation, establishing a reliable platform for further improvement over time.

KETTING We are extremely proud of our ESG framework, published in 2021, which links the budgets of the Dutch municipalities and the expenditures of the Dutch housing associations with the 17 UN Sustainable Development Goals. We have issued transactions for both sets of client groups, in various tenors and currencies including Australian dollars, off this framework.

Last year, 36 per cent – or around €6 billion – of our overall funding volume had an ESG label, and we are aiming for a similar target again. Our 2023 funding programme is around €17 billion compared with €12 billion in 2022, so even if we are not able to match last year’s percentage we hope to at least be able to issue the same nominal amount. Currently, we are at 38 per cent.

We continuously monitor updates from the various guidelines, principles and taxonomies, and we review our programmes accordingly. As they finance the public sector, SSA borrowers are inherently green, social or sustainable. But investors require impact reporting and data so we place great value on our externally verified impact report. There is no single ‘right’ way and no easy pass, but we are working consistently to demonstrate what we are doing to investors.

MORGAN Our focus hasn’t necessarily evolved over the last 12 months. Our owner, the Norwegian government, wants KBN to continue to be a driving force in the development of the market for green financing and to fund investments key to the Norwegian local government sector’s transition to the low carbon economy.

We have always had a strong focus on transparency and reporting: I would like to highlight KBN being awarded Impact Report of the Year by Environmental Finance in 2023. For a relatively small institution, we were humbled to be in such good company with previous winners such as EIB and IFC.

RICHTER There is little change to our green-bond reporting. We are still operating under the EU taxonomy and we aim to be as close as possible to the EU Green Bond Standard. This means we must offer a second-party opinion (SPO) to confirm the greenness of the programme, and we will continue to provide an impact report.

Our social bonds are aligned to ICMA’s Social Bond Principles (SBPs), and we broadened the asset categories under the SBPs in 2022 with the addition of education, healthcare and the care sector more broadly. In addition, we have affordable home ownership, an SME lending programme, access to education and to services for an aging society, and disaster management as part of our social-bond programme.

Our social bonds have an SPO and an impact report. Impact reporting on social issues is more complex and less scientific – but nevertheless we have some positive outcomes to show investors.

AHLÉN FIHLMAN As an overall comment, when it comes to reporting and sustainable bond markets SEK has always striven to keep a conservative standpoint and a high standard. There should not be any questions asked as to where the funds from green and sustainable funding go. We match this type of funding to lending with great care and have always done so.

BILL We have two well-established and transparent green- and social-bond frameworks, and we report on these frameworks within our annual report. This report also lists the projects we have financed.

At the same time, we follow the GBPs and SBPs, to promote transparency. Going forward, IFC is planning to launch a new theme for bonds that are not part of our green or social framework, which will speak to the fact that IFC is sustainable as an organisation.

DORE World Bank has a massive portfolio of development projects that are all focused on financing activities that achieve a positive impact. We use our bonds to highlight themes investors are interested in and we engage with them on these themes.

For our most recent Kangaroo issuance, the theme was biodiversity. This is because biodiversity is critical to sustainable development and resilience. The whole ecosystem needs to function. I am from a small island in the Caribbean called St Lucia. We depend a lot on tourism – and tourists are interested in activities like scuba diving, which relies on a healthy marine environment. This is an example of why natural capital is important for the economy as well as for the planet: it is crucial for economic development and the ability to conserve nature is key for development.