BISHOP Two themes we are focused on relate to sustainability. Last year we asked European investors
what format of sustainable bond they would be most interested in. We wanted to know if it would be a use-of proceeds (UOP) bond like we currently issue, or whether a sustainability-linked bond would appeal. Most seemed to favour the UOP bond, which I found a little surprising.

We also asked investors if it is a requirement or a benefit to have a sustainability rating. The feedback was somewhat mixed, but it is something we are starting to focus on.

BILL We have added biodiversity and blue project financing to our green-bond universe, as more and more projects are coming from these areas. It is somewhat harder to measure the impact of these projects, nevertheless they are highly needed.

Market-wise, we are watching credit spreads quite closely, conscious of what happened last October. Higher interest rates will at some point have to take a toll, so we are conscious of a potential ‘Minsky  moment’ in the market where things will suddenly become shakier than one would like. In this respect, we are frontloading funding more than usual – which is also driven by increased disbursements. Despite the volatility, we also see the US Federal Reserve being more data-driven these days, given US interest rates are arguably close to or reaching terminal levels.

More broadly, we have seen greater demand from clients for lending. In the low-rate environment, supranational, sovereign and agency (SSA) lenders had been crowded out by cheap money from
financial institutions. Now these institutions are curbing lending, especially in emerging markets. This is a space for SSAs to step in. We have seen record levels of lending from our clients over the past 6-9 months and we expect this to continue.

KOTAMRAJU We continue to monitor markets across currencies as we implement the remainder of our programme for 2023. We maintain a nimble approach in accessing markets to be able to accommodate demand from our investors despite potential periods of volatility in the coming months.

MARTIN We are focusing on liquidity and inflation. Liquidity is always a major focus for us – trying to do what we can to improve it in our market and, at absolute minimum, not doing anything as an issuer to make it worse. It was interesting to speak with sovereign peers recently and learn that it doesn’t matter how big an issuer you are on the global stage: everyone has the same concern about doing what they can to support liquidity.

BUTCHER The most important factor in my opinion is what global central banks are doing collectively and individually. They collectively had a major positive and then a negative impact on markets in 2020-22 through monetary policy, which has continued this year and will likely continue in 2024. The yield curve slope and outright interest rate levels are purely down to central banks. There have been false
starts during the past year from the market thinking the tightening cycle has ended.

From our perspective, it is all about the stickiness of inflation and whether the sudden and rapid moves of interest rates over the past two-and-a-half years will bite sufficiently to get central banks more comfortable. Then it is about the relative moves among central banks as any end to the tightening cycle
or easing of conditions will differ between jurisdictions.

If the Reserve Bank of New Zealand starts to ease first, this will attract more offshore investors. Hedge costs will drop for offshore buyers and we should get increased investor demand, particularly from Japan.

WAIT From a trading perspective it is really all about the central banks. The US economy has been remarkably resilient, so it is about watching inflation and unemployment there to see how quickly things change. As to the wider global situation, China seems to be a lot weaker than the market was expecting.
Europe and the UK also look pretty messy, which will have an impact on global GDP.

We are watching for the effects of tighter monetary conditions and quantitative tightening on the banking  sector. Does this mean risk premia have to go up, in the back end of the bond curve in particular?

The fourth factor is geopolitical risk: what is happening with Taiwan, Ukraine and the rest of Europe. It seems a lot less stable than it used to be.

SPEIZER Once all global central banks have finished hiking, I will be particularly interested to re-estimate fair bond yields across countries, which in turn will require estimates of central bank neutral policy rates. I expect neutral policy rates to be higher than they were over the previous decade.

Also required will be re-estimations of risk premia across the curve. Over the past decade, risk premia looked anomalous – they were negative in some countries. The next decade could be a very different
investment environment for asset allocators.

AUSTIN Global markets are pricing a scenario whereby central banks get inflation comfortably back into their target ranges in the next few years. It is possible that we could be in for a prolonged period of inflation above target bands, though – which could challenge the view that central banks can start easing as soon as markets are currently predicting. We also cannot escape the fact that there is looming supply wherever we look. This will be a real challenge for our market. We will be competing for capital in a global market where everyone is facing the same challenges.

DODDRELL With regard to supply, the focus on our side in the medium-to-long term is the infrastructure
requirement in New Zealand, whether it is public transport, water infrastructure or climate adaptation. The numbers that have been socialised to fund these projects are substantial.

The question is how best to fund this and to what extent the debt capital market is involved. In addition, the minister of finance recently said that we need to build back better. We not only have a requirement to
provide the capital to finance the infrastructure requirement but we also need to provide the capital to decarbonise the economy and build the assets that will help minimise further global warming.