2020 – a Year in Review

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ROUNDTABLE SERIES 2020 – A Year in Review

European Debt Capital Markets Sovereigns, Supranationals and Agencies

JANUARY 2021 ta b l e o f co n t e n t s

FOREWORD

Welcome to RBC’s 2020 SSA review

We have put together a comprehensive collection of roundtable discussions to cover the market themes and unforeseen challenges that, over the past year, the sector had to navigate through. Over those 12 months many issuers had to unexpectedly increase their funding needs due to the pandemic at a time where liquidity was challenged, the outlook was uncertain and with personnel having to also adjust to new working from home arrangements. However, the sector rose to the challenge and did so whilst still driving innovation and transition.

We are extremely grateful to the many issuers, investors and market experts who have given up their time to contribute to this review and have offered their insight and experience. Thank you.

The SSA business is core to RBC’s global fixed income franchise. It is the sector that continues to lead the market on climate transition and ESG more generally, as well as in the transition from Libor. It is the most global of sectors, and has led the global response to the Covid-19 crisis. Since March last year, the sector has seen unprecedented volumes of issuance, yet demand has led to lower yields, record order books and negative new issue premium.

2020 was also a record year for RBC’s SSA platform: ■■ In the USA, we led 44 SSA benchmarks for 25 different issuers; totaling over $95 billion ■■ In Canada, we ranked as the top underwriter of Canadian domestic government bonds, having led 305 transactions in 2020; totaling ~C$24 billion, or ~14% of the sector’s ~$176 billion ■■ We ranked number 1 in GBP SSA with 23 deals executed in 2020 for 11 different issuers, totaling over £37 billion, including ranking number 1 with the UK DMO ■■ In Australia, we underwrote ~40% of all SSA supply ■■ We ranked top underwriter in SSA Risk Free Rates globally and have now led 13 inaugural SSA RFR transactions since 2018, including the recent inaugural SONIA index and SOFA index transactions ■■ We are a strong supporter of the Green and ESG bond markets and have now underwritten transactions across AUD, CAD, EUR, GBP, NZD, USD, TRY, ZAR currencies ■■ Our secondary trading and distribution capabilities continue to provide liquidity even during the most challenging of markets

2021 has started very strongly. Let’s hope it continues that way throughout the year and, as the world looks towards vaccines and a return to normality, the markets remain robust, receptive and supportive of the sector.

Keep safe.

Sean Taor Head of European DCM RBC Capital Markets

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1. Over 2020 we have seen global SSA issuance soar in comparison to 2019, with transactions attracting record low yields and yet record high orderbooks. 2020 was an astonishing and challenging year of record SSA volumes in the midst of the COVID-19 pandemic. Both issuers and investors had to innovate their operations in the face of increased primary supply as Governments, Agencies and Supranationals repeatedly accessed the markets to help bolster their economies against the financial fallout from the crisis.

2. Central banks have become some of the biggest players in the market. Quantitive easing (QE) has been hugely important in providing demand for new issuance, but a world in which central banks are the largest investors is not a balanced one. There’s a danger that issuers become too accustomed to this level of demand and find locating investors challenging when QE ends. And while enormous levels of central bank buying continue, there’s a squeeze in the market that has led to negative new issue concessions and a struggle for investor value.

3. LIBOR is coming to an end and new risk-free-rates are taking over. Market participants are transitioning from Libor to risk free rates at increasing speed. Over 2020 we have seen record volumes of SONIA and SOFA issuance, the move from lag to shift and more recently to index, and continued consent solicitation operations in the sterling market to tackle the legacy issue. As the LIBOR deadline approaches the rules and standards around transition are converging.

4. ESG is fundamental in everything we do. Over 2020 the ESG debt market continued to expand and evolve- with record issuance volumes driven in part by issuers’ needs to tackle COVID-19 as well as a wider drive from issuers and investors towards a more sustainable future. Social and Sustainability bonds have driven that expansion through increased ‘use of proceeds’ and KPI-linked issuance markets.

5. There’s a new way of working and investors and issuers have all had to adapt. As stay-at-home orders proliferated across the globe to protect people from the growing pandemic, investors and issuers, like everyone else, have had to adjust to a new way of living and working. Roadshows have gone virtual, client meetings are online and internal and external communications have become more challenging. While most institutions have adapted admirably, there remains the question of how desirable this new way of working will be in the future.

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ROUNDTABLES

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LIFE AFTER LIBOR

With the end-of-2021 deadline for the phasing out of LIBOR rates edging ever closer – and with regulators increasingly pushing market participants to transition to new, near-risk-free reference rates (RFRs) in advance of the deadline – great strides continue to be made.

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PARTICIPANTS:

Sean Taor Xavier Leroy Head of European DCM Senior Funding Officer, New Products RBC Capital Markets and Special Transactions European Investment Bank Isabelle Laurent Katie Kelly Deputy Treasurer & Head of Funding Senior Director of Market Practice & European Bank for Reconstruction and Regulatory Policy Development ICMA

Sean Taor: To start with, let’s look at three things – a backwards look at how we’ve got to where we are today, the issues today and then looking to the future. Going back to 2017 when Andrew Bailey came out with the announcement that the FCA wouldn’t compel or persuade banks to quote LIBOR, it was about a year later that the first reformed SONIA transaction was launched- issued by the EIB. Why did it take so long and why did EIB go down that path?

Xavier Leroy: We had already tried before to issue a bond linked to SONIA – the first SONIA EIB transaction done with RBC in 2010, but, due to lack of demand, it didn’t work as expected at the time. Internally, we were convinced that something needed to be done to replace LIBOR and its flaws, so we were not surprised at all when Andrew Bailey took that stance. We started to work immediately on it by trying to promote an instrument that would work for the market, and make sure that the market would be ready in order for the transaction to be a success.

And it took a long time because the devil is in the detail! We noticed that while the concept of a risk-free rate and SONIA bond is fairly straightforward, when it comes to implementation, there are a lot of hurdles to overcome. It also took quite some time to convince investors, because at first they seemed to be skeptical towards the Bank of England or the FCA. Investors believed that the regulator was saying ‘2021 but, with a bit of luck, it would be 2030, if at all’. At the beginning a lot of investors did not believe that LIBOR would go away but, eventually, they started to be convinced. In addition, the environment was much more favorable than in 2010.

Sean Taor: I agree with that and I would also say, from an RBC perspective, that first SONIA deal in 2010 wasn’t a great success. Partly it was because investors didn’t need to buy it, and partly because, even though SONIA’s been around for some time, many were not all able to book or settle a SONIA deal. It then took eight years for the next SONIA deal.

The transaction that re-opened the SONIA market came in 2018, the first linked to reformed SONIA. That mandate was announced on a Monday and then priced on the Friday. It is very unusual for EIB, in any currency, to have a whole week between announcement and pricing. Was that to fully explain the full detail of the deal to investors, and to the market?

Xavier Leroy: Exactly. We didn’t want to take any chances because the transaction was very high profile. SONIA was all over the news. Therefore, the transaction had to be successful because, otherwise, it could have considerably slowed down the adoption of SONIA by market participants. We wanted the transaction to be a success, not only for the EIB, but for the market as a whole, so that’s why we took it extremely seriously.

We did a massive amount of investor work prior to the transaction to make sure the transaction would run smoothly. We also announced the transaction to the market five days ahead, so that investors would have time to look at it and understand everything, as well as have the opportunity to contact us for any detailed explanation needed.

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We didn’t want to take any chances because the transaction was very high profile. SONIA was all over the news. Therefore, the transaction had to be successful because, otherwise, it could have considerably slowed down the adoption of SONIA by market participants. XAVIER LEROY

Sean Taor: Katie, from the risk-free rates bond sub-group perspective, how was that transaction perceived?

Katie Kelly: I think it was a pivotal transaction, and I know that the official sector were extremely receptive to it, as were the bond market sub-group and the risk-free rate working group, because it laid the foundations for the market to follow.

The transaction and the conventions used became the basic plumbing that people needed to be able to do their own transactions. So it was a very, very important transaction and it’s still the one that we look back to as being the pioneering one for the SONIA market.

Sean Taor: I agree. It gave confidence to others to know that the demand was there, and it was a proof of concept that a transaction would work. Isabelle, to what extent do you agree that having the documentation in place for others to use made a big difference to the development of the market, because unlike the SOFR market, for a long period of time all the issuance that followed in the SONIA market was very similar in terms of calculation of accrued interest, etc.

Isabelle Laurent: I think EIB’s pioneering work was a hugely helpful boost to the market, creating much greater homogeneity in approach than we saw in the SOFR market, and cementing the compounding of coupon rates (but not the margin) with a look-back to make it easier to trade the bonds in the secondary market, or indeed tap them with accrued interest. It also adopted the ISDA convention for compounding only on business days and weighting non- business days, which meant that it was much closer to the approach taken by the derivatives market.

Sean Taor: Yes, there was one small change from that transaction, in terms of calculation, compared to the one in 2010. And the difference was, for the deal in 2010 both the coupon plus the rate accrued. Whereas from that transaction onwards, deals used daily SONIA compounding in arrears and then add the coupon, which is a much easier calculation method, a very smart change, actually.

The SOFR market had seen six or seven different types of calculation compared to just the one in Sterling market. It’s hard to know why that is, but presumably from an issuer perspective, it’s not optimal when you have different markets, different currencies with different calculations and within those currencies, other issuers with different calculations. Clearly, that isn’t as easy as a standard approach across all currencies. SEAN TAOR

Xavier Leroy: Yes, I think we changed the approach when it came to the second SONIA transaction, because with the first transaction we tried to do something that was as perfect as it could be from a mathematical point of view. If you look at any fixed-rate bond, the accrued is daily compounded. You don’t really split whether you have the

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risk-free rate components and the bond or the credit spread, as everything is compounded daily. So normally, from a mathematical point of view, you would expect the credit spread to be compounded daily as well. But then it’s very complex to hedge.

Sometimes, it’s better to have something that is not as accurate mathematically, but much more user-friendly. So, that’s the approach we took. And at every step we tried to get the best balance between the accuracy of the instruments and the simplicity of use, because we strongly believe that if the instrument had to be used by a large number of participants, it had to be simple enough.

Sean Taor: But that wasn’t the case in the US market. There, the SOFR market had seen six or seven different types of calculation compared to just the one in Sterling market. It’s hard to know why that is, but presumably from an issuer perspective, it’s not optimal when you have different markets, different currencies with different calculations and within those currencies, other issuers with different calculations. Clearly, that isn’t as easy as a standard approach across all currencies.

Xavier Leroy: The problem is that the SOFR market is relatively fragmented and very few issuers have the global reach to be able to issue across all currencies and set standards across currencies. So we had to move in small steps because the first SOFR transactions were done by US issuers and were still following a simple average mechanism. We didn’t want to revolutionize completely what was being done, so we took it one step at a time.

The transaction that the EIB did in December 2018 was the first compounded transaction in SOFR. Thus, we brought compounding to the SOFR market. And then, in 2019, we could align the SOFR standard to exactly what we were doing in the SONIA markets.

Sean Taor: And that has now become more standard. Katie, do you feel sometimes that either the regulator or the subgroup itself should put out more statements around aligning standards or is it really not what the committee should be doing? Should the market decide?

Katie Kelly: There are a couple of things to unravel there. First of all, global consistency is a big point – it is a very desirable ambition, but it doesn’t seem like it will come about. And I know in the US, there’s still quite a lot of experimentation around using the lag, the lockout and even the payment delay, which is not something that we’ve really seen in the UK. I’m not sure that they have landed on one particular set of conventions in the way that we have done in the SONIA market.

Although it is a global ambition to have consistency, I still think the market needs to demonstrate a bit of flexibility. What we’re hearing is that investors are accommodating of different options, so long as it’s clear what it is they’re actually buying, and they can differentiate so that they can facilitate the options.

In the US, I think they’re just happy to be using SOFR as a rate. And as for the differences in the conventions, they can happily co-exist.

Should the market be settling and trying to encourage one set of conventions over another? I think that’s probably more a function of how the market will evolve. And, of course, we were all happily going down the lag route, and then suddenly the SONIA index and the SOFR index came about, and that kind of steered things more towards the shift route. I don’t think there have been enough transactions printed yet to say which of those will endure, but if regulators were to enshrine conventions at this stage, it might just stifle any evolutions in conventions that can come about either by using these indices or with FinTech and operational efficiencies that could be made, for instance in the numbers of days in the lag, the lockout or the payment delay.

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Isabelle Laurent: While consistency is, of course, very helpful in encouraging the growth of a market that relies on quite significant systems’ changes as well as a major change to the way the market operates, given the lack of certainty as to the actual payment due until only a few days before it is paid, I think it is important to ensure that we don’t become too fixed, too early, on that we are unwilling to correct for problems that arise. We are, after all, hoping to build a market that will be at least as enduring as LIBOR has been, so we must ensure that we allow issues that could not easily have been foreseen at the time of the first issues to be addressed. A case in point is recognizing the benefits of the ‘lookback with shift’ methodology over the ‘lag’, given its compatibility with an index, which has the joint benefit of creating simplicity in documentation and reducing operational risk in the calculation of the coupon amount, which otherwise has to be done manually to make sure that all parties agree.

Sean Taor: I would also probably note that even though the conventions have been different in the US, and more recently in the UK, the actual difference in accrued is a very marginal difference. Investors are still getting what they expect to be getting under all conventions and circumstances.

As Isabelle noted, one observation with lag is that even though the calculations are the same, some paying agents would use different decimal places, some internal models would use different decimal places again, and therefore came up with a slightly different accrued for the same bond. It was very fiddly, not super easy and in addition an index couldn’t use a lag methodology. Then the Fed announced they would publish an index. Very simple. You could take the start date, the end date and divide the two. Following that the Bank of England then announced the same.

Xavier, in August you then issued the first SONIA bond linked to the index, and Isabelle we saw EBRD following soon after. Congratulations to you both. Do you see that as leading the way for others to follow?

Xavier Leroy: Certainly, the appearance of those indices is a very positive market development for us. When it comes to the whole lag versus shift debate, I think it’s largely theoretical, because once you start paying per denomination, there is no difference, basically. The difference is so tiny between the two methodologies that at the end of the day, you get the same.

We used lag on the first transaction simply because most of the internal systems were not able to use a shift. So that’s why we continued using the lag until the publication of the index, because for us, the difference between the lag and the shift was so small that it was not really relevant from the financial point of view.

We didn’t want to just change course from lag to shift without a good reason. But the index was the perfect reason to do that.

While the change was relatively significant from a system point of view, I think the mindset of the investor had changed. While the first SONIA transaction in 2010 was tougher because investors were not ready to adopt SONIA, by the time the index from the Bank of England came it was obvious to everybody that SONIA was the future. A lot of investors now have dedicated teams to implement all the changes so adoption is much smoother. Nevertheless, there are still some large investors that are not able to buy index transactions because they are not index-ready and their systems couldn’t cope with it.

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For each transaction, we have to cover three aspects, and that’s what we, as EIB, always try to bring to the market when developing these new standards.: 1) You need demand and for investors to be ready; 2) you need a stable, legal framework, which is complicated with all the fallback discussions and it’s constantly evolving; and 3) you also need a system environment that would support the transaction – and that’s very often the most difficult part and easily overlooked.

For example, when we designed the first SONIA transaction, a lot of investors were trying to download the data from Bloomberg to have it in their back-office system. But the ticker, the Bloomberg ticker for the SONIA transaction, is SONIA/N. Forward slash is not a valid character in most back-office systems, so they couldn’t download the data or they were having massive errors. They needed to update all their systems simply because the ticker had been picked years ago and nobody had thought about this. But that’s the kind of issue that we have to overcome when we deal with this type of transaction.

Sean Taor: Katie, we have different bonds existing in the SONIA market; we have shift, we have lag, we have index, we have bonds under fallback one, which end up effectively as a fixed rate bonds, and others with fallbacks two and three. It’s not always clear, when you look on Bloomberg, to pick a bond and know exactly what type it is. Do you see that that’s an issue, or do you see the regulator concerned about that?

Katie Kelly: I think that is an issue actually. There’s a lot of work to do on overlaying systems to be able to accommodate all of these different types of conventions.

We’re pleased to see more issues based on the index in the bond market. But it is key to be able to differentiate what is done on the lag basis, what’s done on the shift basis. I think we’ve been quite vocal about the fact that any transactions done on a lag basis thus far are absolutely fine, and that lag transactions can continue to be issued and can coexist with the shift transactions. But I think it’s important for differentiation, for the systems points, that each of them is easily identifiable.

After the end of 2021 you will have ‘new’ SONIA bonds, legacy SONIA bonds – some of which would have transitioned via consent solicitation on a lag basis, and you might have the ‘tough legacy’ bonds moving to a term SONIA basis. It’s important to know what you are holding and trading. The challenge for the infrastructure providers is to make sure that it’s very clear what’s what. As time goes on, there’ll be fewer divergences, but certainly in the near term, it is an issue.

Sean Taor: Xavier, as an issuer, you currently have bonds maturing past 2021. You have lag bonds, obviously the index bonds, but you are also an international issuer across every currency there is. There are clearly concerns and challenges an issuer has, in regard to being fair and consistent to your investors, regardless of currency.

Xavier Leroy: Absolutely. That’s why, whenever we can, we always try to implement the latest technology available, whether it’s from a structure point of view or from a fallback point of view. And each time, we review the whole situation and we try to implement the latest development.

Sean Taor: We’ve covered how we got to where we are today. I think recently we’ve seen a lot of change in the market- USD LIBOR being extended until mid-2023, two CDOR rates being discontinued in May 2021. We also have Brexit, which is a big concern, we also have COVID, which is a huge issue, both human and economic. The challenge now is where we get to in the next 12 months and how we get there?

Isabelle Laurent: As you say, the confluence of so many major changes and disruptions is very challenging and may constrain the bandwidth of many market players to focus on further evolution from current RFR approaches. We nevertheless think that there would be meaningful benefits for the cash markets if we were to see the daily publication of RFR indices and ideally RFR index values, too, including on non-business days. It would not only facilitate the use of multiple calendars for business days in documentation, but it resolves some rare anomalies that can occur with periods that start and end on bank holidays if rates are very close to zero. Certainly, we would consider this a positive and useful extension of the current approach, rather than an unnecessary and unhelpful divergence.

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Katie Kelly: I think it has been a really tumultuous six to nine months with Brexit imminent, and of course COVID, which nobody could have expected. But, one of the ways we have seen people harness a lot of this volatility is by getting a bit more focused. There’s a lot happening on the regulatory side, there’s a lot happening on the market side, and so I’m quite confident that while the next couple of months will be really busy, they will also be used very efficiently and a lot will happen.

I think there’s been quite a bit of progress made from the regulators recently by just looking at what needs to change by way of the Financial Services Bill for tough legacy. I think we’ll come out on that in a very reasonable place, but I still think that there’s a lot to do on the active transition side, with consent solicitations, etc.

People are starting to really think about this now as we’re approaching 2021. There are a lot of balls in the air right now, which need to fall in place to lay the optimal conditions for the tough legacy solution, but also for the active transition solution. And that’s some of the work that we’re doing on the bond market subgroup, trying to work through the processes, to see where the pinch points are, what can be optimized and made more efficient so that the consent solicitation process is not such a chore and can be made as efficient as possible.

Sean Taor: The pace of change has increased, however with over 500 of tough legacy sterling bonds and only around 23 consent solicitations undertaken over the past 2 years so far, there is a long way to go. In addition, with issuers paying LIBOR when LIBOR is close to zero – compared to around 6.5% during the financial crisis – they may be less incentivized to transition?

Katie Kelly: There’s also a huge regulatory push; the messaging could not be clearer that issuers and investors need to get their heads together and start really seriously thinking about active transition. Because although everyone knows there is a solution in mind for tough legacy bonds, the only way of having any certainty over the final outcome is to actively transition. LIBOR rates might be extremely low right now, making it not particularly appealing for issuers to do anything, but that’s storing up trouble.

Sean Taor: Why in the US, then, have they extended the LIBOR deadline?

Katie Kelly: I can’t speak for what’s going on in the US, but I know they’re on a different trajectory to the sterling market, because consent solicitation isn’t really an option. And, of course, they’ve had different dynamics, in terms of their electoral and legislative calendar.

Sean Taor: Xavier, do you have any observations around legacy either for EIB or more generally?

Xavier Leroy: For the EIB, we don’t really have an issue because the longest bond we have in sterling is Feb ‘22, so the last fixing will be in December ‘21. So in that respect, we’re good. And in dollar, I think pretty much by 2023, everything will have expired. But I do agree that the legacy issue is a big concern. However, the bond side is the tip of the iceberg compared with what the issue is on the derivatives side. For me, the big issue is with derivatives, not with bonds.

Sean Taor: The volume in derivatives dwarfs the bond market for sure. But I think the difference in the derivatives market is that the players in the market are all incentivized to find a solution, whereas in the bond market, you have to find the end investors of the bonds, which is not easy. Even if there’s a willingness to do something, you still have to have their consent. And consent thresholds are 100% in the US. Even in the UK currently it’s still two-thirds or 75%. It’s still a fairly high bar.

When talking about legacy and timeframe, the loan market is interesting. And as an issuer, Xavier, EIB has loans obviously, and you issue bonds to finance those loans. In the UK, originally the timeframe for transitioning or moving away from lending against LIBOR was originally Q3 ‘20 and now that’s end of Q1 ‘21. It’s still an ambitious timeframe but there’s definitely some momentum building. Could you comment from the EIB side, whether in euros or otherwise, how you see the loan market from an EIB perspective?

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Xavier Leroy: In sterling, post-Brexit, new UK projects are not eligible for operations from the EIB reserved for Member States, including those under Union mandates, so the lending volumes are much smaller than they used to be. In the euro market, Euribor is not disappearing so we can continue to swap to Euribor and issue loans in Euribor, as in the short term there is no strong incentive for any market players to move away from that.

Sean Taor: Katie, obviously there’s been discussion around aligning markets, aligning the swap market to the bond market to the loan market. In the US, the loan market association has chosen to use the lag methodology and in the UK, that’s probably the way the loan market will go, as well. Do you have any view on that?

Katie Kelly: Well, I’ve already said that global consistency in conventions is desirable, and it’s also important as between cash products and derivatives. But the fact that the loan market will be going down the lag avenue and the bond market may move more towards a shift is not a problem. The documentation is allowing flexibility for both, and I understand that loan documentation will be developed for each of the conventions. And at the end of the day, it’s a borrower and lender choice.

Sean Taor: Whilst issuance volumes have been limited in recent months as interest rates have remained low and their directional outlook somewhat uncertain, there has been a huge amount of work done to get to what are now – having very standard risk-free rate products and widespread market adoption. Much of that work has come from you and your institutions’ efforts, so congratulations. As a final question, can I ask where you see the next 12 months going?

Katie Kelly: We’ve made a real systemic leap from something that was around for many decades to something else in two and a half years. And there are little differences and tweaks that can be made, but generally I think it’s been a very successful transition. We’re in for a very busy couple of months to 12 months ahead in trying to sort out all the legacy issues. But I’m quite optimistic that will come out well.

Isabelle Laurent: There has been a significant growth in the number of financial institutions able to invest in bonds using compounded RFRs, including index-linked, and I believe that the next 12 months will see a broadening of the investor-base both by investor type and geography, and that we will see RFRs replace LIBOR as the internal transfer price within banks.

Xavier Leroy: Well, I think what would be helpful for the market is a bit of stability. It was key that in the first few years, there was enough evolution, which was needed because we had to fine tune the product. But I think we now have a product that is fairly solid, which has been embraced by both investors and issuers. Hopefully things will stay stable so that we don’t have to change the standard once again and we can focus on legacy issues, rather than trying to readapt the system to a new standout.

There has been a significant growth in the number of financial institutions able to invest in bonds using compounded RFRs, including index-linked, and I believe that the next 12 months will see a broadening of the investor-base both by investor type and geography, and that we will see RFRs replace LIBOR as the internal transfer price within banks. ISABELLE LAURENT

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UK GILT MARKET

In an extraordinary year of government spending, the UK Debt Management Office (DMO) saw its monthly remits balloon and had to come up with an entirely new auction calendar when the annual budget was ripped up just two weeks after it was announced. Into this new gilt market, the spectre of negative interest rates has marched in the wake of the COVID pandemic. The RPI reform announcement was made and the Chancellor announced that the time was right to start developing UK green bonds for a first issue in 2021.

We have brought together the issuer and key investors to talk about a most memorable nine months, and what lies ahead for the gilt market in the UK.

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PARTICIPANTS:

Peter Schaffrik Adam Baker Chief European Macro Strategist LDI Client Portfolio Manager RBC Capital Markets BlackRock

David Parkinson Evan Guppy Sterling Rates Product Manager Head of LDI. Pension Protection Fund RBC Capital Markets (PPF)

Sir Robert Stheeman Mitul Patel CEO. UK Debt Management Office Head of Active LDI. Legal and General (DMO) Investment Management (LGIM)

David Parkinson: Robert, 2020 was really quite an extraordinary year. I don’t think anybody expected 12 months ago that you’d be raising half a trillion pounds. And as I never tire of pointing out to people, you’ve raised that amount of money for the government without it having to resort to the Ways and Means account, which is no small feat. What were the big challenges for you and the lessons that you’ve learnt in 2020?

Robert Stheeman: Probably the biggest single challenge I think was actually around logistics. We had to design, at very short notice, new auction calendars in a way which we’ve never actually had to do before. It’s worth just going back and recalling that on the 11th of March, at the time of the Budget, we published a remit for the 2021 financial year of £156 billion. Within two weeks, as a result of the unprecedented package of measures announced in response to the Coronavirus pandemic, we published a revised operations calendar setting out plans to raise £45 billion for the month of April alone. Since then we’ve published rolling remit revisions, the latest of which was on 25 November, which confirmed total gilt sales of £485.5 billion for the 2020-21 financial year.

It is worth reflecting in particular on the period towards the end of March and early April. Not only did we have numerous discussions with the Treasury about the sudden and very marked increase in financing, we had to design a new auction calendar. When we were faced with the prospect of raising £45 billion in gilts for April alone, that far exceeded the monthly total of anything we’d ever done previously. And then from April through to July, we averaged about £60 billion, which arguably was even more extraordinary.

From an operational perspective, we could, in theory, have stuck to what we usually do, which is holding auctions at 10:30am every day, and it would have been every day. But we quickly decided that we had to design a new auction calendar, as market-friendly as possible. Rather than holding single auctions every day, we determined that holding two non-simultaneous auctions per day on two days per week represented the most effective and market-friendly way to deliver the program. We didn’t want, what I refer to sometimes as, the ‘number nine bus syndrome’. Which is, when you say to yourself, I’ll wait for the next bus, because there’s another one coming in five minutes. We thought it was better to try to get the markets focused specifically on certain operations, on certain days, and this has become a core feature of the operations calendar to date.

There was also the logistics of people and resources. We’re a small office. We hadn’t previously embraced homeworking on a big scale, and there were question marks then about the technology, would it work? I’m sure you have all had that same experience. But we now take it almost for granted.

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Finally, the last challenge was with regard to cash management. We’re also the government’s cash manager and that means ensuring that the exchequer, the government, is fully funded on every single business day. This is an unconditional mandate, and it was a very big challenge for our cash dealing desk. But it’s fair to say I think that the whole team here has performed magnificently.

Probably the biggest single challenge I think was actually around logistics. We had to design, at very short notice, new auction calendars in a way which we’ve never actually had to do before. ROBERT STHEEMAN

David Parkinson: As things start to normalize, were there innovations that had been forced on you out of necessity in 2020 that you would like to see continued? For example, we saw the short-term remits, new benchmark maturities at three years and fifteen years and so on. What do investors think about some of those things being carried forward?

Adam Baker: 2020 was a challenging year. But to see this whole suite of innovations and the flexibility that’s come through is incredibly impressive. I think what’s been key through all of this has been the constant communication that has enabled everyone to adapt and plan accordingly. When we see deep developments to the auction schedule, when we see announcements of syndications, flexible remits… it’s been something that has been managed and communicated incredibly smoothly, which I think has enabled investors to really plan ahead in a time where it’s obviously very turbulent. And that ability to have clarity is very important.

What is also very encouraging is, despite all these new innovations, new benchmark securities and the unprecedented amounts of supply that have come through, we still feel there are new pockets of demand and new areas that can be tapped over the years ahead. Things like green gilts and five-year linkers.

If we look at the syndication vs auction balance, I think it’s interesting again. It’s been a very tricky time for the inflation market given we’ve had RPI reform happening at the same time as all these challenges. But we’ve seen the RPI market retain a degree of functionality, despite not having any syndications in the calendar year. In contrast, we’ve seen many extra syndications in nominal gilts, which again, shows there is a whole range of approaches that have been deployed very successfully to keep things flowing.

David Parkinson: I certainly think that the investor community has really stepped up in terms of being as helpful as possible with feedback. I think everybody’s responded to the challenge to raise the money to help the country through COVID-19. Mitul, what are your thoughts on funding innovations going forward?

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Mitul Patel: I think the move to short-term remits is an interesting one because I think the UK was relatively unique in setting out its funding needs a year in advance, whilst other countries will typically commit on a shorter term horizon. So I think that’s helped, because it was uncertain how much we were going to see in terms of issuance. Demand has also been uncertain, especially when considering the Bank of England’s QE program, and having that greater level of flexibility that short-term remits allow has been a good thing. I’d be interested in Robert’s thoughts as to how he thinks about his approach compared to other international issuers.

Robert Stheeman: It’s an interesting question. For a very long time, we have always pursued an issuance strategy in accordance with the principles of openness, predictability and transparency. But we haven’t been able to be as predictable or transparent as we would’ve liked, for very understandable reasons. The lesson that we take from the fact that things have worked, notwithstanding the fact that we’ve had these very short remits, is that actually the most important thing for us is dialogue with the market. And that dialogue needs to come with, if necessary, explanations as to why we can’t be that predictable.

In all our financing programs, we need to take the market with us. And we need the buy-in of the market in terms of the strategy that we are trying to adopt. That is absolutely key. We’ve always had flexibility. Last year we had to use that flexibility. But in general, we are reluctant to stray too far from the line of predictability, and preannouncing things as much as possible, unless we really think it’s necessary and we think the market will understand why.

Evan Guppy: This theme of flexibility in the remit has also been the main takeaway for me. Robert and the team at the DMO have a very tough job at the start of every fiscal year trying to predict investor demand for the following twelve months and to shape gilt issuance accordingly to give the right mix of instruments to meet that demand. That’s a tricky job in a normal year and was even more challenging in 2020, so the change in having remit updates with a shorter horizon was a welcome variation.

This idea of extra flexibility is something that the DMO have already been incorporating into the gilt remit over the last few years by using an unallocated portion of the remit to change the mix of issuance across different parts of the yield curve as the year progresses. Increasing that unallocated or floating component of the gilt remit might be one way to maintain some of the flexibility that we saw last year to respond to changing investor demands whilst also retaining the predictability and stability of the program which, I completely agree with Robert, is a key feature for gilt investors.

GROSS GILT ISSUANCE

486 500 450 400 350 300 250 228 179 200 166 165 147 153 148 128 138 150 126 116 99

Gross gilt issuance (£bn) Gross 100 52 63 59 50 0 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21

Fiscal Year

Source: DMO, RBC Capital Markets, 2020

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David Parkinson: What about longer term? It looks like we’re going to get debt-to-GDP peaking somewhere just shy of 110% after the latest OBR forecasts. Peter, is that a concern at all?

Peter Schaffrik: The short answer is, I don’t think so. The longer answer is, when you look at the number per se, I think it’s less meaningful. Because we know that first, that number could change quite rapidly depending on how GDP develops. But, more importantly, it depends how you compare these numbers or the structure of your financial markets. There are some countries that run significantly high numbers and are absolutely fine, whereas others struggle at numbers below 110%. And I think here, the UK is quite fortunate in at least three senses.

One, it has a relatively large, sizeable captive buyer base that’s always going to be there. That part of the market was supporting the UK issuance last year and that’s unlikely to go away. Of course, there are limits to it, but I don’t think we’ve reached those limits yet.

Two, which I think is also very important, sterling is a global reserve currency to some degree, and we know that there is a relatively captive international investor base, smaller than dollars or euros, but it’s there.

Three, and absolutely one of the key ones that I would stress, it also has a central bank that conducts monetary policy in part through asset purchases. And when you look at previous episodes of significant short term increases in the debt, that was also the same period of time when the Bank of England was there to support the market through QE and that has a stabilizing effect as well.

David Parkinson: Adam, have you got any thoughts on the challenges of a growing debt-to-GDP ratio?

Adam Baker: It’s obviously something that’s very interesting to track and keep an eye on. It’s also worth considering the cost of debt servicing, and the term structure of the debt profile. I think when we look at both of those two, the fact that we have such a low yield environment is certainly beneficial and has limited the overall cost of debt servicing. In addition, when we look at the profile of UK government debt, it is significantly longer than a number of other countries. I think that takes a lot of pressure off from any potential future rate rises and the impact that would have on debt sustainability.

David Parkinson: Robert, you’ve been very concerned with the short-term challenges, how much have you thought ahead for the next five years?

Robert Stheeman: We have had the benefit of structural demand, especially in the long end of the curve, for a very long time. And that structural demand is very well anchored. What I personally believe is that we have to make sure that we nonetheless address, within those particular investing areas, any developments or preferences as they evolve.

One of the things which I found very interesting and very heartening last year was that demand from international investors for gilts held up in proportional terms, which is quite something when you think about what that means in absolute terms as well. We have to factor some of that into our issuance strategies. Not just, as we did last year, making sure that assets which appeal in particular to reserve managers or sovereign wealth funds were still made available, for example. But also that we make sure that we continue to issue across a range of maturities, in order to address the needs of the entire investor base. Getting that balance right is always tricky, we’re going to have to do that a lot of that in the future.

Mitul Patel: There was an interesting paper out by Larry Summers and Jason Furman this week which talked about different ways of thinking about the debt stock, and they were making the point that you are comparing a stock measure to a flow measure when you compare debt to GDP. And actually if we take the present value of all future GDP back to compare stock with stock, it wouldn’t look nearly as bad. They came up with new fiscal rules that looked at debt service cost as a proportion of GDP. I do wonder if those are metrics that we’ll increasingly focus on going forward, and whether debt to GDP feels like it’s increasingly an outdated measure.

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Robert Stheeman: I’m not an economist, but it’s an interesting question. One thing I’d say in relation to the UK and to the gilt market is that the increase in the debt-to-GDP ratio that we saw last year is not unique to the United Kingdom, clearly. And, to some extent, that’s also probably helped us during the course of 2020 in terms of international perception as well.

David Parkinson: Inflation’s been the number one talking point around the market over the last few weeks; and I think specifically, people are really interested in how the Treasury and DMO approach the question of what proportion of issuance should be in inflation-linked form.

Over recent years, you’ve been reducing the proportion in linkers and a lot of that stems from the Office of Budget Responsibility (OBR) fiscal risk reports. But, in those reports, they variously refer to linker issuance as a percentage of all gilt issuance; linker debt as a percentage of total debt stock; linker debt as a percentage of GDP. And if we look over the last year, we’ve had a sharp decline in the percentage of issuance in linkers. But if you look at linkers as a percentage of issuance net of APF purchases, it’s actually almost the same as 2019. And I think people are still quite confused about how they should be thinking of this going forward. Can you help guide us through the thought processes there, Robert?

Robert Stheeman: It’s quite a tricky one. You’re right and you pointed out in particular the difference between nominal issuance demands and relative or percentage issuance demand, and last year a lot of people noted that the percentage dropped dramatically. However, that really dramatic drop to 5% or 6% needs to be seen in the context of what we’ve had to do in the nominal space and, in particular, the consultation on RPI which has now concluded.

To your specific question around how we decide, there is no magic formula here, it’s important to stress that. In response to the OBR’s Fiscal Risks Report, the Treasury has been, for a couple of years, seeking to moderate the inflation exposure in the debt portfolio. This is because, at around 26%, we have been an outlier by international standards. I believe the next closest country, probably some months ago, used to be Italy with around 13%. And for most other countries, it’s well below 10%. And that’s not to say that we think it’s bad having that inflation exposure in the portfolio. But it’s fair to say that it is a bit of an anomaly on an international basis.

In addition, there are questions there around the risks that it poses because if we continue to issue the same percentage amounts, the inflation exposure within the portfolio will just inexorably increase over the coming years. The Treasury has been explicit that this is what we’re seeking to moderate. There is no particular target, percentage target, that we’ve got to achieve. However, in designing the gilt remit we always try to make an assessment of the costs and risks debt issuance by maturity and type of instrument. Our decisions on the composition of debt issuance are, of course, also informed by an assessment of investor demand for specific debt instruments. The whole process of remit setting on an annual basis is deliberate. Because trying to analyze intelligently the trade-offs between cost and risk in our debt issuance strategy, on a time horizon that is longer than one year, is not optimal.

We are now busy designing the remit for 2021 to 2022. And not letting the inflation percentage of the portfolio grow inexorably will play a significant factor. At the same time, we also acknowledge that certainty on the RPI consultation now probably makes it easier for us to issue into that market than it has been over the last few months.

David Parkinson: Robert’s got to look at this from the point of view of an issuer, but, Mitul, from the point of view of an investor, what would you like to see in terms of the make up of issuance split between linkers and conventionals?

Mitul Patel: We still see decent demand from our clients for both linkers and nominals. There was a bit of a hiatus in terms of hedging demands over the course of 2020. When we look at things like the PPF Purple Book, it does show just how much progress investors have made in de-risking in both nominal and linkers. And it makes sense to think about increasing linker issuance back again, because I do think the demand is there and obviously from a borrower’s perspective, the low levels of real yields and the high levels of implied breakeven inflation would suggest it’s still a cost-effective form of borrowing for the government.

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A couple of points that I would be interested to hear Robert’s take on are, does the change to a CPIH accrual (Consumer Price Index + Housing costs) impact the forward-looking projections of how linkers as a percentage of the overall debt stock change? Does that make it less of a concern to have as many linkers going forward? So that’s question one.

Secondly, the Bank of England is buying a lot of the nominal debt that has the impact, as referred to in the fiscal risk reports, of really shortening down the average effective maturity of the debt stock. This makes the government very sensitive to changes in overnight interest rates. So whilst terming out issuance on a nominal side is good from a refinancing risk, obviously if the bonds end up back at the Bank of England, it still needs a really high level of sensitivity to overnight interest rate risk for the government. So how do you balance up the fact that the government becomes very sensitive to overnight interest rates if you issue a lot of nominals that then get bought back, compared to the inflation risk that you get for issuing linkers?

It makes sense to think about increasing linker issuance back again, because I do think the demand is there and obviously from a borrower’s perspective, the low levels of real yields and the high levels of implied breakeven inflation would suggest it’s still a cost-effective form of borrowing for the government. MITUL PATEL

Robert Stheeman: I’ll start with the second point. It’s important to understand that when we develop our debt management issuance strategy, we do that completely independently of what the Bank of England is doing or what we happen to think the Bank might or might not do in the future. I do need to stress, we genuinely do not know what the Bank is going to do in terms of monetary policy. I think you probably know that and this audience knows that, but at times, I feel the need to dispel one or two myths. What happens is that we have to design a financing remit. Then the Monetary Policy Committee (MPC) may or may not decide to implement QE as it sees fit. But that is entirely a decision for the Bank. And the Bank will be focusing on monetary policy considerations, not on our debt management considerations.

So while I acknowledge the point that Mitul has raised, and it’s one that was raised by the OBR, it doesn’t actually have any bearing in terms of how we see this balance of cost and risk. Not least because neither we, nor anyone else, really knows what is going to happen to those gilts that have been purchased as part of the Asset Purchase Facility (APF). I don’t think anyone, probably not even the MPC itself, actually knows, at this stage, are they going to sell them? Are they going to let them mature? These are all decisions for the MPC to take at a later stage. But the relative level of yields at that time is what is going to be key to the final ex-post analysis of the cost and risks, and the cost of a particular issuance strategy.

Mitul Patel: I understand that you have to operate independently, but from a government perspective, I would be a bit more concerned about just how sensitive they are now to changes in overnight interest rates. So obviously it isn’t something that is going to happen anytime soon, but even when you hear Rishi Sunak’s comments earlier in the week, it’s obviously something that’s at the top of his mind as to what happens when interest rates rise and it becomes more and more of a problem.

Robert Stheeman: I completely agree with that, and I think it’s a very fair point. I just need to touch on CPIH if only to say this; I can’t really say very much. Because at this stage, I think we also need to see how demand for inflation assets evolve after the announcement last week and how will it evolve between now and 2030 when the methodology of the RPI will be changed. That’s quite hard for us, where we sit today, to know precisely. But it’s obviously something we’ll be watching very closely.

20 | RBC CAPITAL MARKETS UK GILT MARKET

David Parkinson: Perhaps while we’re on the topic of CPIH specifically, I can ask the investors if there’s any thoughts about the move to CPIH de facto indexing from 2030 and whether that strengthens or weakens the case for issuance in CPIH form in the meantime?

Evan Guppy: I do think that it weakens the case for CPI or CPIH issuance at least a little as the alignment of RPI to CPIH has, at the stroke of a pen, created a large amount of CPIH-linked assets. However, for tenors before the 2030 alignment there continues to be untapped excess demand on those such assets.

There are a large number of defined benefit schemes that have indexation linked to CPI or the DWP statutory minimum indexation. These schemes account for something in the range of 20-30% of pension indexation with an average duration of around ten years.

So, although the alignment of RPI to CPIH from 2030 does help to some extent in providing those schemes with a better hedge for their CPI-linked liabilities, actually a large part of those liabilities are shorter dated and therefore still searching for a better hedging asset.

The relative market pricing of RPI and CPI swaps maturing before 2030 illustrates the ongoing mismatch between demand and supply for CPI-linked assets, with CPI swaps consistently trading at rich levels for some time. As a result, I think there’s still a strong case for issuing gilts CPI (or CPIH)-linked, particularly shorter than ten years, to meet that investor demand.

One question that remains outstanding after the RPI reform announcement is a question that market participants have been asking since the 2011 DMO consultation on CPI issuance: namely, what is the government’s preferred measure of CPI? The ONS have nailed their colors to the mast of CPIH whilst other parts of government are still using CPI or even RPI for indexation. Of particular importance for the defined benefit pension world that forms much of the investor base for inflation-linked gilts, is the DWP’s choice of index to be used for the calculation of the statutory minimum indexation each year. Before progressing with CPI or CPIH-linked issuance some resolution of that question is ideally required.

David Parkinson: Adam, perhaps I can ask you for your thoughts on any of those points – linker issuance as a percentage of the total, and CPI or CPIH issuance?

Adam Baker: On linker issuance as a percentage, I think the market is definitely keen for clarity to emerge on what the new normal might look like. I think the flexibility of what we’ve seen in the last year has been quite interesting.

Considerations around debt sustainability and a desire to manage the proportion of the book which is inflation-linked, will doubtless continue to be key areas of focus for the DMO when determining future issuance of both nominals and linkers. However, the market perspective is that what the APF is buying is also of interest, because that determines what is potentially available as tradable stock. That balance is something which will be watched quite closely, and the flexibility that’s been used so far has been helpful in trying to maintain that order.

The whole CPI vs CPIH vs RPI debate will continue and is something that needs additional clarification. I think the shorter end of liabilities is quite an interesting point. Post-2030, reform clearly gives us something in the CPI family of indices that we’ll have linkages to. In the short end of the CPI market, we certainly have seen some evolution over the past years. And I think

21 | RBC CAPITAL MARKETS UK GILT MARKET

that somewhat went on hold during the RPI reform period, when electricity market reform based supply and various other things that were previously coming to the market eased down to some extent. But that structural richness of CPI at the front end, and relative lack of supply, is something that is on pension schemes’ mind. They will be working out the most effective way of managing that risk going forward from the available set of assets, with gilts clearly being a key part of that universe.

David Parkinson: I’d like to touch briefly on negative interest rates. Michael Saunders has now become the fourth out of four external MPC members to come out broadly in favour of the idea of negative interest rates. Perhaps I can ask you Peter, how likely you think negative interest rates are? And as a general question, if we get negative interest rates, will it just be business as usual for the bond markets?

Peter Schaffrik: When we spoke earlier about relatively high debt to GDP levels and what it potentially might do, I was saying I don’t think it has any significant negative downside to the market per se. One of the things that could be the outcome of that is that the government, rightly or wrongly, feels constrained in what it can do fiscally. And I think if you dig deep enough into the latest fiscal plans that have been issued, you can actually see that some retrenchment of some areas is already in the plan.

Now as it pertains to negative interest rates, we do have that in our forecast profile, so we do think it is more likely than not that it will be implemented. And again, the less you get support for the economy from other sources, the more likely it becomes. Compared to three months ago, given the outlook for the economy, given the outlook for the pandemic, the outlook for vaccine development and so on, it has become less likely. But we still think there is a very decent chance.

Two other points I would make. It is a very curious position that we’re currently in, that on the one hand the Bank of England has said it is there as a tool to be used, they’re conducting all these surveys, they’re doing all the prep work, they’re doing the research. On the other hand, they always tell us it is not necessary to use it at this stage, and one wonders at what stage might it become necessary? And the other rather curious situation is that the four external members are seemingly more in favour of it.

We have spoken to some reserve managers who do have constraints buying assets that are yielding less than zero. So it is quite possible that, at the margins, going negative chips away at demand for your bonds. However, having said that, what we have seen from the evidence that’s there, if you look at the vast majority of the European markets that are now trading in negative territory, hardly any of the issuers there had any difficulties placing that.

And maybe last but not least on this topic, I would think that if it was to happen, let’s say early this year as we forecast, the UK would be in a much better position to withstand any potential negative ramifications, because everyone else is at a very low base rate already, and a good part of the Euro market is already negative. When the ECB went negative, it was a different story. And one of the things that we saw at the time was outflows of the European market predominantly into dollars, but also to some degree in the Sterling market, which I don’t think would necessarily be the case here in this current condition, given that more or less everyone is roundabout zero anyway.

It is a very curious position that we’re currently in, that on the one hand the Bank of England has said [negative interest rates are] there as a tool to be used, they’re conducting all these surveys, they’re doing all the prep work, they’re doing the research. On the other hand, they always tell us it is not necessary to use it at this stage, and one wonders at what stage might it become necessary? And the other rather curious situation is that the four external members are seemingly more in favour of it. PETER SCHAFFRIK

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David Parkinson: Mitul, how do pension funds look at the idea of negative interest rates? If we find out that actually the lower band is below zero, do pension funds think there’s more to be hedged potentially? Or does it make very little difference?

Mitul Patel: I had a conversation earlier in the week with a consultant and one of their clients about negative interest rates. And he said the big problem was when we moved from 4% down to 1%, moving from 1% to zero didn’t really seem that big a deal anymore.

Even if you went down to zero, looking at the ready reckoner that comes out and what impact that would have on pension fund deficits, just doesn’t seem as material now as it would have been in the past. I think a fair bit of hedging has already been done. People are already thinking, if we do go to negative rates and further move in yields, is that going to be damaging to us or not? If we do see the move to negative rates, that would just sharpen people’s focus a bit more as to their hedging needs and what they’re protecting themselves against.

Especially when you look over the next 30, 40 or 50 years, the time horizons of our clients, frankly we just don’t know how negative they could go in future cycles even if they do just go mildly negative in this one. And clearly some of the long- term themes around moving to a cashless society or having central bank-issued digital cryptocurrencies, are innovations that make you think it could well mean a substantially negative interest rate is something that investors need to think about over the coming cycles, even if not necessarily so much for this one.

David Parkinson: Evan, would negative interest rates be a unique challenge for you or is it just business as usual if that comes along?

Evan Guppy: I think Mitul’s point was absolutely right, that the Rubicon was crossed long ago for most investors in terms of yield levels below which markets cannot fall.

For example, when the real yield of index-linked gilts approached zero, I recall plenty of people saying those couldn’t go into negative territory and likewise when long-dated nominal yields fell below 4%, I heard arguments that there was no value in hedging at those levels because they couldn’t possibly fall further. The market has left those levels a long way behind.

I think that most trustees and portfolio managers have now accepted that there aren’t any psychological or physical laws that prevent yields from going below certain thresholds, and you only need to look at European and Japanese yield curves for confirmation that gilt yields can go into negative territory. So I don’t see negative interest-rates as being a particular issue for LDI investors.

That said, for the small number of holdouts that think zero is a lower band for yields, the Bank of England announcing that the effective lower band for policy rates is below zero is probably pretty important in changing perceptions.

David Parkinson: Adam, what are your thoughts?

Adam Baker: For a while we’ve had the question of with rates being so low, can they go even lower? And when you remove the psychological boundary of zero, that does help give an illustration that there is more risk ahead. It’s also worth noting that it’s not entirely unprecedented, so we can learn from different currencies and different jurisdictions. Also, very short dated gilt yields have been negative for a period of time. Even though we’re focusing on the Bank of England in terms of negative policy rates, the idea of negative yields isn’t something that would be completely new to the LDI world.

David Parkinson: I guess Robert, listening to those comments from the investors, you’re feeling relatively sanguine about negative interest rates from an issuance point of view?

Robert Stheeman: Ultimately the market is going to determine the yield at which we issue. And if that yield happens to be negative, then we will take that as we would take a yield that is positive. That might sound a bit simplistic but I think it’s a fundamental truth that we will have to issue at all yield levels.

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The other thing I would add is that, as Evan referred to, we’ve had negative real rates in the linker space for a long time. On Wednesday, for example, we issued a 28 linker with a real yield of minus 2.95, I think it was. So ultimately the market will decide.

David Parkinson: I mentioned earlier that inflation had been the number one talking point with my customers over recent weeks, but certainly a very close second has been green gilts. I’ll start with you Evan, I’m interested to hear investors’ thoughts on what the features people would like to see in the first green gilt issue, but also what I think is planned to be a multi-year program. What features are investors hoping for?

Evan Guppy: There are two dimensions to that question. First is the greenness of the gilts and the second is the market structure. On the former, PPF, BlackRock and LGIM were amongst the co-signatories of the Green Finance Institute’s proposal for green plus gilts, and that sets out in more detail our thoughts than we can probably do justice here. But a couple of key points from it would be the emphasis placed on a ‘just’ transition by tying in both green and social outcomes; and the importance of following the best practices that have been set up by other issuers, particularly in continental Europe, for example by following the ICMA Green Bond Principles.

Unfortunately, there’s also a question relating to Brexit. EU Taxonomy Regulation has a ‘do no significant harm’ measure which of course the UK will no longer be subject to. So, one question investors will have is whether the UK government are going to replicate or replace that measure.

In terms of market structure, my thought is that there’s a choice between the German approach of dual lines where you have a bond that’s specifically for green investors with the same details as a non-green bond, vs Dutch/French approach where a green bond is an additional piece of the puzzle in terms of the curve and where you expect that bond to be of similar liquidity to other benchmark bonds.

To me, the latter makes a lot more sense. Whilst the German approach might be most appropriate for the bund market, it does seem as though it limits the investor base that might buy the green bond as there is a more liquid, non-green alternative available. Issuing a green bond that is targeted at the whole investor base, rather than just a limited part of it, seems to increase the likelihood of a large order book and tighter pricing on the deal which would set a strong precedent for the rest of green capital markets in the UK which, I think, is a really important part of the green gilt initiative.

Adam Baker: We see a lot of questions come through from our clients. We actually released a paper recently covering some of the key areas, and we only expect the number of questions and the focus on it to increase in the coming weeks and months. The increased emphasis from regulators, particularly noting some of the comments from The Pensions Regulator on ESG considerations, provides further impetus to what’s likely to be a very big evolving topic.

Peter Schaffrik: I’ve got one broader thought and then one maybe with a very narrow analyst point of view. The broader thought is, when I speak to investors about the topic in general, I think one of the absolute keys is transparency, and providing the information, how will it work, what are we planning, is it going to be a curve or is it just the one-off? What are the proceeds actually going into? What is the greenness of it? Because what we do know is it’s a sizeable, already growing, investor base that is looking at these parts of the market. And I think it’s fair to say that we’re still in the early days and as much transparency as can be provided is advantageous.

Now with my analyst hat on, and going a little bit against what Evan just said, the German model is obviously very neat because you can have a very direct comparison about what is the premium that investors are willing to pay for these types of issues. You don’t have to fiddle around with constructing an extra curve. So from a sheer analyst point of view, as clear as it can be what the difference in pricing is, if there is any, is advantageous as well.

David Parkinson: I’m coming to you last on green gilts Robert because I expect at this stage there’s not an awful lot you can say. But perhaps I can ask if there’s anything at this stage the Treasury and/or DMO have ruled in or ruled out?

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Robert Stheeman: The only thing at this moment that is certain is what the Chancellor himself has announced, mainly that we will in 2021 be issuing a green gilt, subject to market conditions, and that we intend to build a green curve. Further information and the precise details of the instrument will be made available in due course. We recognise the importance that any framework from which we would issue a green gilt will and must align with the relevant recognised ICMA market standards and principles. However, we are still in the very early stages and we have yet even to appoint a structuring bank or banks to advise us on this. However, we do believe that there is sufficient evidence now to suggest that the demand is such that this could prove to be good value for money.

25 | RBC CAPITAL MARKETS MDB CALL TO ACTION

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MDB CALL TO ACTION

Multilateral Development Banks (MDBs) have always been at the forefront of helping their member countries respond to major crisis. Now with the global economy thrown into turmoil by the ravages of COVID-19, let us take a closer look at how the first responders of the SSA world – the MDBs – are helping countries deal with the economic and human costs of the pandemic.

26 | RBC CAPITAL MARKETS MDB CALL TO ACTION

PARTICIPANTS:

Jigme Shingsar Arturo Seco Presencio Managing Director Deputy Chief Financial Officer, Head of Funding

Jigme Shingsar RBC Capital Markets Division, Head of Treasury & ALM Division Managing Director, Debt Capital Markets RBC Capital Markets Council of Europe Development Bank (CEB) New York Anthony T. Ruschpler Jens Hellerup Jigme Shingsar joined RBC Capital Markets after 10 years at Salomon Brothers and Citigroup where he was primarily responsible for US based coverage of global borrowers and cross border issuance. Senior Treasury Specialist Head of Funding and Investor Relations Prior to joining Salomon Brothers, Jigme was Bank of Montreal with responsibility for Asian Development Bank (ADB) Nordic Investment Bank (NIB) coverage of public sector clients. Jigme’s current coverage responsibilities at RBC encompass global relationships with Supranationals, Sovereigns and Agencies.

Jigme holds a BA (Economics) and MBA (Finance) from the University of Toronto and holds the Chartered Financial Analyst (CFA) designation. Domenico Nardelli Andrea Dore

Treasurer Head of Funding Asian Infrastructure Investment Bank (AIIB) World Bank (IBRD)

Laura Fan Heike Reichelt Head of Funding Head of Investor Relations and Inter-American Development Bank (IDB) Sustainable Finance World Bank (IBRD)

Flora Chao

Global Head of Funding International Finance Corporation (IFC)

QUESTION & RESPONSES: WORLD BANK (IBRD) AND INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programmes specifically targeting the impact of the virus?

The World Bank Treasury is the Treasury for both the World Bank that has been in the market for over 70 years and for the IDA (International Development Association), a relatively new issuer in the market that provides financing as grants and at concessional terms to lower income countries. Both issuers have been taking fast, comprehensive action to tackle the biggest challenge of our generation, focusing on saving lives, protecting the poor and vulnerable, ensuring sustainable business growth, and rebuilding in better ways. Across the World Bank Group, we are making available up to $160 billion in financing over a 15-month period ending June 2021 and delivering emergency health support to over 100 countries so far. As we deploy targeted resources to address COVID-19, we are working to ensure these investments support a robust, sustainable and resilient recovery. In addition to ongoing health support, the World Bank emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure COVID assistance gets to the people who need it most and are hit the hardest in this crisis. We are also putting knowledge and data at the center of our operations; to help governments make vital decisions informed by the best and latest research. Finally, we are providing $12 billion ($6 billion from the World Bank / $6 billion IDA) for developing countries to finance the purchase and distribution of COVID-19 vaccines, tests, and treatments.

Does the increase in loan demand due to COVID create additional challenges in terms of your risk exposure and if so how do you manage that?

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We are facing increased demand for our financing – both for the World Bank and especially for IDA. As a counter- cyclical institution with a mandate for sustainable development and mission to end extreme poverty and boost shared prosperity in developing countries we are fully focused to deliver a surge in commitments and disbursements. We continue to monitor developments and to manage the risks associated with all its portfolios. The announced lending capacity response to COVID-19 was estimated within our existing financial, operational and risk management policies as well as prescribed limits, which have not been modified for this response to the outbreak.

We manage country credit risk by using individual country exposure limits and conducts stress tests that include effects of changes in market variables and of potential macroeconomic developments on our portfolio to ensure we stay within prudent risk parameters.

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

We have placed a big focus on highlighting the operational response to COVID through our issuance program. For example, in the Spring and Summer of 2020, both the World Bank and IDA issued several benchmarks in the raising awareness for our projects and programs that provide support to member countries in response to the health, social and economic impacts of COVID-19. For the World Bank (IBRD), this included an USD8 billion 5-year which set the record as the largest SSA bond. We are forecasting larger funding programs than we would have expected without the pandemic - approx. USD65 billion for FY21 for IBRD and USD10 billion for IDA. The size of IDA’s funding program has been especially impacted as IDA ramps up faster than was initially expected to support its borrowing members – the lower income countries.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

The World Bank has dedicated Financial Sustainability Framework that, as part of its 2018 capital increase from shareholders, includes a dedicated crisis response envelope of $10 billion. This envelope is being tapped in fiscal year 2021 so lending will increase significantly in this fiscal year. Our estimated borrowing includes this increased lending target and we expect borrowing to stay around that level for the next few years. Going forward from there the available funds will be determined by annual lending limits that align to IBRD’s long-term sustainable capacity. In terms of aligning our commitments to our funding program, we aim to fund in a given fiscal year based on disbursements and refinancing needs.

For IDA, being able to ramp up funding by accessing the capital markets allows IDA to respond quicker to country needs than we would have otherwise been able to do. Since it was IDA’s plan to increase funding from the capital markets to over USD10 billion per year, the funding program will continue to grow – IDA will reach that target quicker than IDA would have without the current situation.

Are you concerned that increased overall funding requirements for the SSA sector might create challenges in terms of funding capacity and/or cost of borrowing?

No. We see incredibly strong demand from a diverse and growing set of global investors. The pandemic has heighted awareness in the investor community of the importance of addressing sustainability addressing critical social needs like access to healthcare, food insecurity and social protection.

Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

Our Sustainable Development Bond label helps to raise awareness about the World Bank’s Environmental and Social framework and development mandate with investors seeking to manage ESG risks and achieve development impact goals, including those using the Sustainable Development Goals as a framework. With our bonds, we are communicating the environmental and social impacts of all the products, in various sectors, through which we lend

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to member governments. We want investors to understand the value and benefit of what the entire balance sheet finances—how it contributes to development and the SDGs, not only select environmental aspects that our green bond portfolio supports.

While the initial response to the pandemic was health related, all of our member countries are facing challenges as a result across all of the sectors we work to create jobs, develop human capital, promote and protect global public goods, drive environmental sustainability, facilitate access to finance, and build social safety nets.

While the initial response to the pandemic was health-related, all of our member countries are facing challenges as a result across all of the sectors we work to create jobs, develop human capital, promote and protect global public goods, drive environmental sustainability, facilitate access to finance, and build social safety nets. ANDREA DORE

What sort of opportunities do you see arising from QE in different regions and are you seeing new market opportunities emerge?

QE is having an effect on market dynamics in several ways and affects borrowers differently, depending in part on whether they are part of the designated programs or not. We’ve seen that markets – as usual – respond well to stability and the QE program has helped in that regard.

When looking at 2020 issuance volumes, it comes as no surprise it has been a challenging year for issuers in the Kangaroo market with supply down ~50% YoY vs 2019. However throughout the year, the market has provided small windows of opportunity where pricing has aligned with issuers able to achieve larger transactions size than historically available in the A$ market. Can you share your recent experience in the A$ market in 2020?

Market dynamics made issuance challenging for us as well. We typically try to issue AUD benchmarks throughout the year, but this year it wasn’t until later in the year that we were able to issue in that market. After monitoring the market very closely all year, fortunately, we were able to act quickly to issue a very successful dual tranche AUD benchmark in November. We issued a dual tranche 5-year and 10-year AUD, 1.1 billion and 550 million, respectively. This was incredibly well-received by the market and allowed us to meet investor demand from the different segments of the market.

Since the RBA undertook further Monetary Policy easing in March and implemented a form of QE we have seen a slight shift in issuance dynamics. The 2-3yr sector of the curve has accounted for 22% of overall supply (versus 4% in 2019) and the mid curve has accounted for 41% of supply, still remaining the sweet spot for both investors and issuers. Given the low yield environment, over recent months we have seen demand extend out to the 7yr point on the curve. However, the 10yr point still remains challenging for most issuers, which has historically been a key point on the curve for issuers in the Kangaroo market. The World Bank was able to achieve the largest Kangaroo SSA transaction to date, issuing a dual tranche A$1.1bn 5.5yr and A$5.5bn 10yr in November. The 10yr tranche was the largest deal in this point on the curve since 2012. What factors do you think led to the success of this 10yr tranche? Do you think this tenor will return to a benchmark point on the curve in 2021?

All the stars aligned for us: investor preference for longer tenor, yield pick-up in 10-year part of the curve and spread movement that was in the right direction for us. We also appreciated the timely and comprehensive market feedback from our coverage banks (like RBC), which enabled us to act quickly. The Kangaroo market is an important market for us. We will continue to be active in the Kangaroo market and will continue to ensure that we have liquid lines across the curve. If all the stars align again, we will be thrilled to return to the market.

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2020 has seen a large percentage of issuance into both EURs and USD, while currencies such as AUD, GBP and CAD have all seen reduced supply. How important is both investor and currency diversification to you? Will there be an increased focus on this looking forward?

Last fiscal year (FY20), the World Bank raised about 16% of its record US$75 billion funding through GBP, CAD, AUD and NZD bonds. These are all strategic markets for the World Bank, where we will continue to issue. Our issuance volume in any currency is not only based on investor demand, but also market levels and comparison to other potential funding sources, so how much we issue is difficult to predict - but overall we expect to continue to issue into these currencies at current levels.

Historically, the Australian market has been very receptive to SRI supply with the market seeing significant growth over the past few years. Expanding on the topic of diversification, in 2020 ~80% of global ESG transactions were in EURs, whereas ESG supply in AUD has fallen 33% versus 2019 driven by a lack of SSA issuance in the sector. After issuing the first ever green bond in the A$ market back in 2014, the World Bank has played a very active role in contributing to the growth of the sector. Can you talk us through the key differences between your green program and sustainability programs? Has COVID 19 impacted how you look at issuance in both of these programs?

All World Bank bonds are Sustainable Development Bonds and World Bank green bonds are a sub-set. COVID-19 should not have any impact on this however it does present an opportunity for us to communicate and raise awareness with investors and capital market stakeholders about the critical aspects of sustainable development we finance.

With our bonds, we are communicating the environmental and social impacts of all the products, in various sectors, through which we lend to member governments. We want investors to understand the value and benefit of what the entire balance sheet finances—how it contributes to development and the SDGs, not only select environmental aspects such as our green bond portfolio. That said, green bonds are important and will remain important for us going forward, also because green bonds often serve as an entry point for investors interested in using their investments to overcome global challenges and we have an interest to support this market and these developments towards sustainable capital markets.

QUESTION & RESPONSES: INTER-AMERICAN DEVELOPMENT BANK (IADB)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programmes specifically targeting the impact of the virus?

The IADB mounted a historic effort in 2020 to assist its 26 member countries in Latin America and the Caribbean to manage the economic and social impacts of the coronavirus pandemic. In response to the COVID-19 crisis, the IADB rapidly reformulated tools and fast-tracked operations that led to increases of 11% in sovereign guaranteed approvals and 55% in disbursements, compared to 2019. As a result of this coordinated effort the IADB group approved a record $21.6 billion in lending in 2020. The IADB has focused on financing for immediate public health needs, safety nets for vulnerable populations, economic productivity and employment and fiscal measures to help mitigate economic impacts. These efforts include assisting countries in securing personal protection equipment in the early days of the pandemic to minimum-income guarantees for 750,000 older adults in Bolivia. In addition, the IADB announced that it has mobilized $1 billion to help borrowing member countries acquire and distribute COVID-19 vaccines.

The IADB mounted a historic effort in 2020 to assist its 26 member countries in Latin America and the Caribbean to manage the economic and social impacts of the coronavirus pandemic. LAURA FAN

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Does the increase in loan demand due to COVID create additional challenges in terms of your risk exposure and if so how do you manage that?

Scenarios developed by the IADB suggested negative growth between 8% and 10% this year, but with a somewhat slower recovery. The sharp fall in economic activity, together with a widening inequality, prompt serious social and economic challenges going forward. The IADB expects this economic scenario to result in a deterioration of credit ratings for our sovereign and non-sovereign-guaranteed operations and, depending on its duration, to further increase the Bank’s allowance for developmental assets credit losses, as well as affect the performance of the Bank’s investment portfolio. The size of our financial support speaks to the unique threat that the pandemic poses to the social and economic development of our borrowing member countries, but still preserves our financial strength and sustainability as mandated by our shareholders who recognize the strategic importance of maintaining IDB’s triple-A rating in times of uncertainty like these. The IADB has built capital buffers to absorb downward shocks stemming from rating downgrades and market volatility events and assesses financial resiliency regularly through stress testing. All internal and external capital and liquidity metrics remain within their respective financial and risk management policy thresholds.

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

The 2020 borrowing program increased to $26 billion from the initial projection of $20.5 billion. Though our funding strategy remained similar to previous years—targeting USD global benchmarks, strategic markets and private placements to meet investor inquiries—there was a large increase in USD global benchmark issuance. This increase was due in part to worsened basis swaps across various currencies relative to last year. We continue to seek currency and investor diversification. In 2021, we hope to issue in currencies we have not traditionally been very active in, e.g., euros and Nordic currencies.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

The borrowing programs for the next several years may remain elevated but it is expected to normalize afterwards. The 2021 borrowing program is sized at $25 billion, subject to cash flow changes. This size is larger than the typical program of around $20 bln. IDB President Mauricio Claver-Carone is seeking a capital increase from our shareholders and if approved, this would allow for a larger borrowing program, perhaps in line with the levels seen during the COVID-19 pandemic.

Are you concerned that that increased overall funding requirements for the SSA sector might create challenges in terms of funding capacity and/or cost of borrowing?

One positive aspect is that so far the demand for SSA paper has grown in tandem with the increase in supply. Given the larger borrowing programs of all of our peers, the challenge will be to time and sequence bond issuances in an optimal manner. It is especially challenging in markets which involve a swap as large issuances may move the basis such that further issuances may be difficult for those issuers that cannot keep the currency outright. It requires issuers to be agile so that they can move quickly if a window arises as there is typically a “first mover” advantage. As for the cost of borrowing, the Bank’s policy of setting its lending rate on its sovereign guaranteed loans as a cost pass-through plus a variable lending spread, immunizes it from the volatility associated with the underlying cost of funding.

Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

In 2020 there was a strong demand from investors for socially responsible bonds to mitigate the social and economic impact of the global pandemic. To meet this demand and highlight the IADB’s strong commitment to sustainability, the IADB issued bonds in the Sustainable Development Bond (SDB) format and also in EYE (Education/Youth/Employment) format. The benefits to issuing in such formats is that it allows the IADB to generate stronger awareness of its mission to a broader audience. The IADB is a triple-A rated institution and a development bank that seeks to improves lives in Latin America and the Caribbean. An investment in IADB bonds allows not only for a potential financial return but also the opportunity to “do good”. Indeed, we expect demand to continue and even grow for such products and as such, we should continue issuance in both formats. If there is further investor demand for bonds focused on COVID-19, the IADB could continue issuing SDBs highlighting SDG#3 – Good Health and Well Being.

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What sort of opportunities do you see arising from QE in different regions and are you seeing new market opportunities emerge?

The various QE programs may allow the IDB to further diversify its funding sources in other currencies. In 2021, we would like to further the investor and currency diversification of our funding program. Subject to market conditions, we hope to become more active in both euros and Nordic currencies. We would also like to further develop our curve in SOFR.

QUESTION & RESPONSES: ASIAN DEVELOPMENT BANK (ADB)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programmes specifically targeting the impact of the virus?

Since the very early stages of the COVID-19 outbreak, ADB has made targeted interventions to help its developing member countries (DMCs) take immediate actions to respond to the challenge. This includes about $180 million in grants to support the purchase of PPE, our initial response of $6.5 billion in March, followed by a $20 billion comprehensive response in April, and most recently, a $9 billion vaccine facility to support the development of national vaccine allocation plans, the building of vaccine delivery systems, and the purchase of vaccines in a timely manner. As of 4 December, we have committed $14.8 billion towards COVID19-related operations and have disbursed around $6.9 billion to date. We have also mobilized development partner cofinancing of $9.8 billion, thus raising our total COVID-19 response to about $25 billion.

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

We initially planned for a borrowing program of up to $28 billion for 2020 however in order to support ADB’s response to the COVID-19 pandemic, this amount was increased to $40 billion in June 2020. At over $35 billion executed year to date, ADB has implemented its largest ever borrowing program on record following a similar strategy to previous years. Global US dollar benchmarks anchored the funding program and facilitated volume across the maturity spectrum and more frequent outings compared to previous years.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

We expect the borrowing requirements for 2021 and 2022 to be in the same region to that of 2020.

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Are you concerned that that increased overall funding requirements for the SSA sector might create challenges in terms of funding capacity and/or cost of borrowing?

As far as execution went in 2020, we did not feel there was any significant detrimental impact on funding capacity nor cost of borrowing as a direct result of the sector’s larger funding requirements. We have not faced substantial headwinds raising the volumes that we wanted to at an acceptable duration/cost. Rather, the immediate volatility created by the pandemic initially pushed spreads wider across the SSA space which have largely come back in towards the second half of the year. Despite the swing in funding cost, the US dollar market continued to provide better cost-efficiencies in size compared to other markets on an after-swap basis.

The immediate volatility created by the pandemic initially pushed spreads wider across the SSA space which have largely come back in towards the second half of the year. Despite the swing in funding cost, the US dollar market continued to provide better cost-efficiencies in size compared to other markets on an after-swap basis. ANTHONY RUSCHPLER

Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

Towards the beginning of the pandemic, we did include use of proceeds language in our 3-year and 5-year Globals that highlighted ADB’s COVID-19 response as well as on select themed private placements. The rationale to highlight ADB’s response to the pandemic remains relevant and we remain receptive to continue such an approach for as long as there is material demand for it. Going forward, we would look to highlight specific COVID-19 projects financed by ADB on our thematic issuances where investor demand for such products is forthcoming.

What sort of opportunities do you see arising from QE in different regions and are you seeing new market opportunities emerge?

The Kangaroo market in 2020 has been rather challenging when compared against our $ curve. However, QE in Australia squeezed SSA spreads tighter, enabling the relative value consideration to be constructive for a new issue which we capitalized on with a 5.5-year line. In terms of opportunities going forward, clearly the impending shift to ARRs will further open up the SOFR market opportunities which we are following keenly.

The year has been a bit of struggle to get something substantial done in the Australian dollar market beyond reverse enquiry driven taps, with cost relative to US dollars a key consideration. Nevertheless, we remained engaged and have been constantly monitoring the Kangaroo market for issuance opportunities. Following earlier announcements on monetary policy and market expectations that further likely easing may be on its way, we saw credit spreads, including SSAs, perform markedly in the secondary market and the environment looked constructive for a new mid- curve trade ahead of the upcoming RBA meeting in November and, to a lesser extent, the US elections. Given the general scarcity of paper and the market rally, we saw a healthy backdrop to capitalise on pent-up investor demand for a new long 5-year transaction that represented the first new mid-curve transaction from an SSA issuer in 2020.

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Since the RBA undertook further Monetary Policy easing in March and implemented a form of QE we have seen a slight shift in issuance dynamics. The 2-3yr sector of the curve has accounted for 22% of overall supply (versus 4% in 2019) and the mid curve has accounted for 41% of supply, still remaining the sweet spot for both investors and issuers. Given the low yield environment, over recent months we have seen demand extend out to the 7yr point on the curve. However, the 10yr point still remains challenging for most issuers, which has historically been a key point on the curve for issuers in the Kangaroo market. Following period of limited supply ADB ‘re-opened’ the market with a new A$750m 5.5 year benchmark in late October, right before the Reserve Bank announced their full QE program on November 3rd. Did you notice any different investor demand dynamics to your previous experience in this point on the curve?

We did see a fairly even split between offshore and domestic accounts in our A$750mn 5.5yr Kangaroo, with final placement leaning slightly towards international investors as central banks helped drive initial momentum in the orderbook. While there was certainly a lot of latent demand from past SSA redemptions trying to find a home, we did have a sense that offshore investors were more receptive to the attractive yields currently on offer in the context of further monetary policy easing to come.

Investor and currency diversification remains central to our funding strategy however we remain vigilant on the after- swap cost as it pertains to the end pricing we are able to pass on to our own clients. Where the cross-currency basis allows, we will look to issue in other currencies including EUR, AUD, NZD, GBP and CAD amongst others.

Historically, the Australian market has been very receptive to SRI supply with the market seeing significant growth over the past few years. Expanding on the topic of diversification, in 2020 ~80% of global ESG transactions were in EURs, whereas ESG supply in AUD has fallen 33% versus 2019 driven by a lack of SSA issuance in the sector. ADB currently have two green bonds outstanding in A$, the January 2024 which was issued as a straight 5yr and the March 2030 which was a 10.5yr. When looking at issuing in the A$ market under this program, what are the key factors when considering tenor?

When looking at any market, we would target the tenors where investor demand is at its deepest and the all-in cost is favourable. In A$, the benchmark tenors have traditionally been 5yrs and 10yrs which is why you will find both our regular and green outings at these point.

QUESTION & RESPONSES: INTERNATIONAL FINANCE CORPORATION (IFC)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programs specifically targeting the impact of the virus?

IFC is in a unique position to help by leveraging our long-standing expertise and global network to support and finance the private sector in developing countries, building on our 3.0 strategy of creating markets and mobilizing private capital. Our recent $5.5-billion capital increase provides additional capacity to support the resumption of capital flows into and across emerging markets.

We launched an $8 billion fast-track COVID-19 facility in March 2020 to provide liquidity to existing clients, helping to keep companies in business and preserve jobs. Much of the funding is going to micro, small and medium-sized enterprises, a major source of employment in developing countries, as well as women entrepreneurs, who have suffered disproportionately during the pandemic. In July 2020, we launched the $4 billion Global Health Platform, which is investing in companies to increase the supply of critical medical equipment and services in developing countries, including face masks, ventilators, testing kits and, ultimately, vaccines.

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To complement our relief efforts, IFC is also working toward the restructuring of underlying companies and operations that are viable and necessary to support economic growth. We are working closely with our World Bank colleagues to ensure countries have the policies and regulations in place to resolve distressed assets as quickly as possible, such as through faster bankruptcy proceedings.

Does the increase in loan demand due to COVID create additional challenges in terms of your risk exposure and if so how do you manage that?

In light of COVID-19, IFC continues to monitor and manage additional credit, market and operational risks for its financial activities. IFC’s response is within its existing financial, operational, and risk management policies as well as prescribed limits, which have not been modified as a result of the response to the outbreak.

In rolling out the financing from the $8 billion fast-track facility, we cut our average processing time from 276 to 69 days for mainstream projects, without reducing the investment-review quality and while continuing to manage risks appropriately. This fast-track financing is available to existing clients who are in good standing with IFC and comply to ESG requirements.

IFC is committed to transparency and disclosing information regarding the projects that receive support under the facility. For projects with financial institutions and real sectors clients, IFC discloses its COVID response support immediately following project commitment. For real sector clients, in cases where new material environmental and social risks are identified and cannot be mitigated under existing mechanisms, IFC will disclose these projects 30 or 60 days prior to commitment.

In rolling out the financing from the US$8 billion fast-track facility, we cut our average processing time from 276 to 69 days for mainstream projects, without reducing the investment-review quality and while continuing to manage risks appropriately. FLORA CHAO

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

The major source of IFC’s borrowings is the international capital markets, and our access to funding has not been impacted by the crisis. In early March, we were able to issue our largest social bond – a $1 billion dollar trade, garnering 3 times subscription levels amid the turmoil in the market. Our funding program for this fiscal year ending June 30, 2021 remains at approximately $12-14 billion in size, with close to $8 billion already issued. We diversify borrowings by currency, country, source, and maturity to provide flexibility and cost-effectiveness. We also operate a short-term discount note program to provide an additional funding and liquidity management tool. This program provides for issuances with maturities ranging from overnight to one year.

Part of our funding strategy is a proactive investor relations approach through which we are able to monitor and respond to investor interest promptly. Our presence in numerous markets works in favor of this approach.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

We do not expect any increase to our borrowing program requirements.

Are you concerned that that increased overall funding requirements for the SSA sector might create challenges in terms of funding capacity and/or cost of borrowing?

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The increase in funding program sizes in the SSA sector due to a response to COVID does not compare to the increase in cash to the system provided by Central Bank easing. It is unlikely that investor demand and cost of funding would be affected negatively due to larger funding programs. Market dynamics like overall yield levels and swap spreads would likely be more of a driver. In fact, investor demand will likely increase as COVID-related or social bond issuances increase due to the growing universe of ESG focused investors.

Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

IFC’s loans to clients are funded primarily through our market borrowings which encompass two recognized sustainable bond programs: IFC’s Social Bond Program and Green Bond Program. Both programs fully align with the Green and Social Bond Principles and have raised a total of close to $14 billion in a wide range of currencies. Since launching the two programs, we have enjoyed an increased dialogue with investors, particularly around impact reporting and ESG integration in the portfolios they manage. Additionally, through IFC’s role as Chair of the Executive Committee of the Principles, we have been at the forefront of shaping developments in the sustainable bond market.

In light of COVID, social bonds can offer an avenue for public and private sectors to access vital capital for healthcare, sustaining jobs, and economic recovery. IFC has issued social bonds since 2017 and the proceeds go towards projects that are eligible under the Social Bond Principles and select projects from IFC’s Banking on Women and Inclusive Business portfolios. These may include loans that have been committed under IFC’s COVID-19 facility.

QUESTION & RESPONSES: ASIAN INFRASTRUCTURE INVESTMENT BANK (AIIB)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programmes specifically targeting the impact of the virus?

The Asian Infrastructure Investment Bank (AIIB) has created a Crisis Recovery Facility (“Facility”) to support AIIB’s members and clients in alleviating and mitigating economic, financial and public health pressures arising from COVID-19. Over the 18-month period from April 2020 to Oct.16, 2021, the Crisis Recovery Facility will offer up to USD13 billion of financing to both public and private sector entities in any AIIB member facing, or at risk of facing, serious adverse impacts as a result of COVID-19. The types of projects that this Facility considers include: (1) Financing of immediate health sector needs; (2) Economic resilience and (3) Financings to address liquidity constraints for clients in infrastructure and other productive sectors.

Does the increase in loan demand due to COVID create additional challenges in terms of your risk exposure and if so how do you manage that?

Financings under the Facility will apply AIIB’s regular financing terms and risk criteria. Approvals will be based on AIIB’s current procedures and in line with principles of AIIB’s Environmental and Social Framework.

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

In December 2019, AIIB Board of Directors approved a USD6 billion global borrowing authority for 2020. As a result of the COVID-19 Crisis Recovery Facility and increased disbursement needs, AIIB’s borrowing authority for 2020 was increased to USD9 billion in September this year.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

Prior to 2020 we had expected to reach a borrowing requirement of USD10bn by the mid-2020s, the Crisis Recovery Facility has brought forward the increase in borrowing requirements and we expect our borrowing requirement to be around USD10bn going forward.

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Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

All bonds issued by AIIB are Sustainable Development Bonds, this is because our Environmental and Social Framework (“Framework”) was put in place at the very beginning of the organization and all investment operations must comply with the principles of the Framework. The Framework is a system that supports AIIB and its clients in achieving environmentally and socially sustainable development outcomes. It does so by integrating good international practice on environmental and social planning and management of risks and impacts into decision- making on, and preparation and implementation of, AIIB supported Projects.

QUESTION & RESPONSES: NORDIC INVESTMENT BANK (NIB)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programmes specifically targeting the impact of the virus?

In late March, the Nordic-Baltic Ministers, who are Governors of NIB, invited the Bank to take swift action to help alleviate the effects from the coronavirus crisis. As an immediate response, NIB substantially increase our lending. Our loans was made available to member countries and sustainable businesses that are facing short-term liquidity problems due to the crisis. We stand ready to extend loans to financial intermediaries for on-lending to small and medium-sized companies as well as to provide direct financing to larger businesses.

Does the increase in loan demand due to COVID create additional challenges in terms of your risk exposure and if so how do you manage that?

No, the new loans did all need to adhere to NIBs credit policy. Disbursement increased by EUR 1.4 billion due to NIBs response to the pandemic.

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

Due to pandemic our funding program has increased by EUR 1.4 billion. In order to fund this increased activity, NIB set up the NIB Response Bond Framework where the use of proceeds of the bonds will finance projects that alleviate the social and economic consequences of the COVID-19 pandemic in our member countries. NIB has issued a EUR 1 billion NIB Response Bond, and a SEK 4 billion Response Bond under the framework.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

As the situation is as of the beginning of December the pandemic has increased the 2021 funding program for about EUR 3-400 million.

NIB set up the NIB Response Bond Framework where the use of proceeds of the bonds will finance projects that alleviate the social and economic consequences of the COVID-19 pandemic in our member countries. NIB has issued a €1 billion NIB Response Bond, and an SEK4 billion Response Bond under the framework. JENS HELLERUP

37 | RBC CAPITAL MARKETS MDB CALL TO ACTION

Are you concerned that that increased overall funding requirements for the SSA sector might create challenges in terms of funding capacity and/or cost of borrowing?

No, we believe the Global investor base has high appetite for high grade SSA supply, special in the light of the central bank activities.

Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

We got very good feedback on our NIB Response Framework and it highlighted NIB effort to support the Sustainable Bond market. Further it diversified our investor base. In terms of pricing of the bonds it is hard to say there were any benefits. We hope the vaccine will imply that it will be a minimum a Response loans we need to give in the future and thereby also issuance of NIB Response Bonds.

What sort of opportunities do you see arising from QE in different regions and are you seeing new market opportunities emerge?

It will imply cheap funding, but unfortunately we also think some pricing has been distorted.

QUESTION & RESPONSES: COUNCIL OF EUROPE DEVELOPMENT BANK (CEB)

Please describe your institution’s response to COVID 19 in terms of increasing lending to members. Did you announce any special programmes specifically targeting the impact of the virus?

The CEB has committed to providing timely, flexible, and targeted financing to our member countries, both during the COVID-19 crisis and on the road to recovery.

The coronavirus pandemic is severely testing healthcare systems across Europe but also has hit small European businesses hard, prompting fears of massive job losses. The CEB is therefore focusing on projects which are bolstering healthcare and preserving jobs. To achieve that the CEB is partially financing extraordinary expenditures designed to help healthcare systems cope with the pandemic as well as broader civil protection measures to protect the population. CEB lending teams are in constant dialogue with its member countries which have been severely impacted by the pandemic, identifying specific needs and approving projects responding to the COVID-19 pandemic

The Bank has been quick to implement mechanisms that will help to reduce the fallout from the pandemic on its borrowers. All requests for COVID-19 funding are being appraised once a week and then put to the Administrative Council for approval, which reaches its decisions through written procedures and on a monthly basis. This fast track procedure of approving loans has allowed the CEB to provide support where it is most needed in a very timely manner.

Does the increase in loan demand due to COVID create additional challenges in terms of your risk exposure and if so how do you manage that?

Given the increased supply in the EUR market, it remains to be seen how demand and supply dynamics in the cross-currency basis market will play out as issuers might increasingly seek opportunities in other markets than the EUR. ARTURO SECO PRESENCIO

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The CEB main business is lending to CEB member countries which includes lending to the governmental authorities directly or to regional authorities and public financial institutions. Given the exclusively social mandate the CEB was already financing projects supporting vulnerable groups which includes projects in the health sector. As such, projects mitigating the impact of the coronavirus pandemic fall into the core expertise of the CEB. The extensive experience evaluating the risk of such projects and the well established relationships allowed the CEB to respond quickly with great confidence.

What has been the impact on your borrowing program and how has it changed your approach to the markets (if at all)?

Because the playout of the loans happens in tranches the original funding volume of 4.5bn for 2020 was not upsized. However, for 2021 the planned funding volumes are 5.5bn which is a significant increase. The positive market sentiment in Q4 2020 already allowed us to successfully raise some prefunding which will reduce the effective amount for next year.

One effect this year was the strong loan demand in the health sector. In anticipation the CEB updated its Social Inclusion Bond (SIB) framework in April, adding the health sector to the eligible categories. As a result the CEB issued 1.5bn EUR under the SIB framework, nearly doubling the amount of outstanding Social Inclusion Bonds. Furthermore, the SIB framework was used for the first non EUR transaction issuing a 500 million 3y USD bond in addition to the 1bn 7y EUR benchmark.

How long do you expect the increased borrowing requirements to be sustained or do you expect your funding program to normalize in the next year or two?

As mentioned next year’s funding volume will be 5.5bn of which already some was covered by the 1bn USD prefunding transaction in Q4 2020. Thus, the effective funding for next year is nearly the same as the 4.5bn planned for this year. Looking at the rollover needs in the next years we expect a regular market presence in the size of around 4.5bn per year. Given the uncertainty regarding the additional support needed to overcome the COIVD-19 pandemic and recovery there is the chance that there will be a slight increase of these funding volumes driven by loan demands.

Are you concerned that that increased overall funding requirements for the SSA sector might create challenges in terms of funding capacity and/or cost of borrowing?

The EUR market already underwent a major test with the European Commission starting its SURE borrowing. The overwhelming demand for these transactions and the subsequent secondary market reaction demonstrated that the market is very well able to absorb additional supply. Given the ECB’s QE support and the lower supply in Q4 the outcomes potentially were exaggerated yet the positive underlying dynamics should also remain in the coming year.

Have you seen benefits to issuing in “sustainable development bond” format and do you expect to continue to highlight COVID response specifically in your issuances going forward?

Especially at the start of the crisis there were plenty COVID response bonds issued. The labeling had the advantage to highlight borrowing required which was not necessarily planned and emerged due to the emergency situation. As the year went on issuers were able to readjust and communicated the funding plans and the COVID response label was no longer needed. Therefore we would not expect to see many COVID response labeled bonds going forward.

What sort of opportunities do you see arising from QE in different regions and are you seeing new market opportunities emerge?

Global central banks this time responded swiftly and decisively by putting various measures into force. In a first phase these measures greatly helped to stabilize markets and contain spread moves. The ample monetary support across regions creates a very favorable environment for debt issuance. Latest spread developments indicate that funding costs are at the lower bound of the last years. Given the increased supply in the EUR market it remains to be seen how demand and supply dynamics in the cross currency basis market will play out as issuers might increasingly seek opportunities in other markets than the EUR.

39 | RBC CAPITAL MARKETS EUROPEAN LANDSCAPE AND EU RESPONSE

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EUROPEAN LANDSCAPE AND EU RESPONSE

Following the pandemic, the European Union quickly launched various support programs, amongst them the SURE program and the flagship NextGenerationEU program. Those programs will likely see the EU transform itself into one of the largest issuers in the European bond market.

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PARTICIPANTS:

Peter Schaffrik Siegfried Ruhl Chief European Macro Strategist Head of Funding and Investor Relations RBC Capital Markets European Stability Mechanism (ESM)

Siegfried Ruhl, as Head of Funding and Investor Relations at the ESM, already helped establishing the EFSF/ ESM as a major issuer during the European Debt Crisis. Since October, Siegfried has also taken on the role of Counsellor to the Director General of DG Budget at the European Commission.

Here, Siegfried discusses the early success of the first EU transactions, the plans going forward and the importance of the Social Bond format, with Peter Schaffrik, Chief European Macro Strategist at RBC Capital Markets.

Peter Schaffrik: You joined the EFSF/ESM when it was in its infancy, but now it’s an established issuer. When you look back over time, having achieved a great deal, what are the points that you’re most proud of – and what would you have done differently?

Siegfried Ruhl: Looking back eight to ten years, when EFSF and ESM were created, many people questioned the euro. Many people expected a breakdown of the euro, and now we have overcome the crisis. The creation of EFSF/ESM was a signal of great solidarity between Euro-area countries and we were able to make that solidarity a success – and with solidarity we now fight the current crisis. So when you ask me what I am most proud of, it is that we were able to overcome the situation in 2010-12. With EFSF and ESM, we were able to contribute to that development. Five member states that had lost market access, or had nearly lost market access, are back to the market. They implemented reforms. And they became growth champions over the last years in the Euro area. So the concept worked, and we were able to contribute. This is what I’m proud of. What would we have done differently? It’s a difficult question because, as you mentioned, it was a great deal – so I wouldn’t change a lot. I wouldn’t change it substantially or structurally. We set up a very flexible funding strategy, we added a bill program. All this was important to manage the funding liquidity risk, and give us the flexibility we needed. In 2015, for example, that flexibility was important when the third program for Greece was approved, to spread the supply over different maturities and to avoid an over- supply on specific parts of the curve. And we had a very strong communication strategy – this very open sovereign- style transparent communication strategy created predictability and trust. I think these are the core elements – and I would do it again the same way. You can always discuss details – specific transactions, the timing, the pricing – and then we think we always know better with hindsight. But I would change nothing significantly.

Peter Schaffrik: Turning to the here and now, the EU is obviously not an entirely new issuer to the market – it does exist already – but surely, it’s very likely to transform itself significantly, in terms of its market presence going forward. Comparing it to what we’ve just talked about, how similar or how different do you think this task is compared with your ESM experience?

Siegfried Ruhl: I would say there are some similarities, but maybe less than what you might think. What is the similarity? We have to implement a funding strategy, a way to approach investors, which allows us to fund huge amounts over the upcoming years. Yet there are also a lot of differences. At the starting point ten years ago, we were in the middle of the European debt crisis, and now nobody is questioning the euro. For EFSF and ESM, we had to raise funds for member states who had lost market access. The funds we raise today and in the future

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under NextGenerationEU [NGEU] will be used for grants or for loans to member states. But these member states have market access. They can fund themselves. But by choosing to do this together, many of them can get more advantageous terms. So the financial aspect is more relevant than ten years ago in the case of EFSF and ESM. On the other hand, ten years ago, we had to build everything from scratch. We can now build on an existing framework. The EU is an established issuer. The EU and the European Commission have experienced professionals who know how to raise funds in the market, and how the existing legal framework works. So there is already a basis on which we can build in the funding strategy for the NGEU, which also has comes with some limitations. That is the beauty of building something from scratch – you have more freedom to design it.

At the starting point ten years ago, we were in the middle of the European debt crisis, and now nobody is questioning the euro. SIEGFRIED RUHL

Peter Schaffrik: How do you actually manage to get a new team off the ground in clearly unique circumstances? You have lockdowns everywhere, and the risk of people having to isolate. It’s hard at the best of times, so how did you manage to get this off the ground in these times?

Siegfried Ruhl: Having the existing framework and the existing staff is definitely an advantage. In the case of EFSF and ESM, we had to bring people together from different institutions. At the EC, we already have a core team that knows each other quite well and which has been dealing with this business for many many years. Based on this team of high-profile specialists, we have to increase the resources. The commission benefits from the support of other institutions, from national DMOs. So, over the next weeks, more experts will start and support us in the setting up for the NGEU. While the on-boarding process being done in a remote situation is different than doing it physically, we have got familiar with that. I received a very warm welcome and strong support when I arrived just two months ago, and my colleagues are very professional. This will work.

Peter Schaffrik: I would like to turn to the recent issues and the funding structure going forward. The first issue you did was obviously a huge success, and you have a massively oversubscribed order book. What’s your main takeaway from this inaugural deal in a new program?

Siegfried Ruhl: All three SURE transactions we have seen so far went extraordinarily well. The three transactions were subscribed by around 13 times with triple-digit orderbooks. This is really not what we have seen in the past – and not only was the volume of the order books impressive, but the quality of the order books was too. For me, one of the takeaway, is that this is a clear signal of the trust the European Union receives from the investor base, from the domestic and the international investor base. This is a major development of the last ten years. The decisions made during 2020, starting with the €540 billion package in April, with the €240 billion for the pandemic crisis support of the ESM, the €200 billion from the EIB to support businesses, and the €100 billion for the SURE program – and then in the summer the €750 billion for NGEU – this collective, quick, decisive reaction, shows a great European solidarity. It shows that the EU is able to act if there is a need to. This creates trust – and that is also reflected in the strong demand we see for this bond. An additional element of the strong demand is that all the SURE bonds will be issued under a Social Bond framework. They are Social Bonds. There is a huge demand for this asset class in this quickly growing market. Supply was lagging behind the demand and the market really appreciates that there is now an issuer in the market that can satisfy all the investment needs in this market.

42 | RBC CAPITAL MARKETS EUROPEAN LANDSCAPE AND EU RESPONSE

All three SURE transactions we have seen so far went extraordinarily well. The three transactions were subscribed by around 13 times with triple-digit orderbooks. This is really not what we have seen in the past – and not only was the volume of the order books impressive, but the quality of the order books was too. SIEGFRIED RUHL

Peter Schaffrik: In an environment where it’s unknown how much funding will be required in any given year, and you don’t know the value of loans and grants you will pay out under the NGEU scheme over the coming years, how do you factor this in when you come to the market?

Siegfried Ruhl: The exact funding needs are not known, you’re right. What we do know is that it’s up to €750 billion in 2018 prices. This is split by €390 billion for grants and €360 billion for loans. Looking at these numbers, even if the final amounts are not known at the moment, I think it’s clear that an opportunistic approach where you as an issuer, sitting at the sideline, waiting for the right moment to issue something, is not working. These numbers will make the EU a frequent issuer in any case. We are currently working on a funding strategy which, on the one hand, gives predictability and confidence to the market as a strategic approach and, on the other hand, keeps some flexibility, as there are always some changes possible. But this is nothing unusual and nothing new. This is the situation we experienced at the ESM, at the EFSF. This is a situation you also have in the normal budget funding for member states. When they published their issuance plans over a year ago, in December 2019, the numbers looked different to what they finally had to raise in 2020. So there’s always some uncertainty and you must be able to deal with it. This strategic approach in the market will include the use of auctions in addition to the current syndicated format the EU is using. We may also include a bill program – EU treasury bills – to get access to this additional investor base. The main part of the borrowing under the recovery plan is expected to happen between 2021 and 2024. We will meet this by issuing bonds on all parts of the curve, by tapping existing bonds and having a strategic approach in the way we act in and communicate to the market.

Peter Schaffrik: Do you expect to tap into offerings such as a short bond or maybe even some other instruments on top of what you’ve just mentioned – or is it too early to say?

Siegfried Ruhl: Well I think we have to differentiate here between the current funding for the SURE program and other existing funding like the EFSM, which will have openings next year. All these programs are funded in the back- to-back approach. So the funding conditions are more or less determined by the lending needs. In the case of SURE, there is the regulation that fixes a maximum maturity for these disbursements to member states of 15 years as an average maturity of the full amount of the loan proceeds. Determining an average maturity, of course, gives flexibility to raise it with different transactions, yet it’s also the objective to deliver the best possible support, so it will come as close as possible to this maximum average maturity. So there is the flexibility to do something shorter, but it’s not envisaged at the moment. Under the NGEU funding, as I mentioned before, there will be larger volumes involved. You need flexibility to react to various market situations. We will have to raise this money over a period of several years. Market conditions will change during this period. So you need more flexibility to act on different parts of the curve during this period.

43 | RBC CAPITAL MARKETS EUROPEAN LANDSCAPE AND EU RESPONSE

With the funding of NGEU, we will become one of the largest issuers in Europe with yearly issuance amounts comparable to those of the big sovereigns we’ve seen in that area. And this will require a change in the way the EC acts in the market, and it will also impact how we interact with the financial intermediaries – the banks. SIEGFRIED RUHL

Peter Schaffrik: How will you develop a bank dealer group? Both the EFSF and the ESM – and your previous employer, the German Finance Agency – worked with relatively large groups that were relatively easy to be a part of. Do you envisage that this is also the way forward? Will you continue to be as inclusive as possible?

Siegfried Ruhl: Well, with the funding of NGEU, we will become one of the largest issuers in Europe with yearly issuance amounts comparable to those of the big sovereigns we’ve seen in that area. And this will require a change in the way the EC acts in the market, and it will also impact how we interact with the financial intermediaries – the banks. We need the support from the banks. We need them to develop a well-functioning and liquid secondary market also, and additional market infrastructure. So we are currently thinking about how to amend the relationship we have with the banks. We are thinking about the creation of a more formal primary dealer group and, while many sovereigns are having primary dealer groups, we have to pick the right way for the European Commission. Such a large funding program that is finally backed by all EU members and EU citizens is a very inclusive thing, and we will see how far this can be reflected in the set-up of the primary dealer group.

Peter Schaffrik: We touched upon it earlier, but can you talk a little bit about the quality of the order book, as opposed to the size of it? What’s your early experience in terms of investor participation and how do you see that evolving going forward?

Siegfried Ruhl: We have already discussed the strong interest we received for the first SURE transactions and they have already attracted a diverse base of investors, compared with the previous EU issuances. This is due to the higher outstanding volumes of the bonds. This leads to an increased liquidity in the secondary market. The bonds are now more embedded as collateral. They are accepted for margining and repo at the main CCPs. Combined with the regulatory treatment, as HQLA level 1 assets they are very interesting for bank treasuries. All this increases the attractiveness for domestic and international investors. For example, in the first transaction, 16% of the 10-year SURE transfer was allocated to international investors. I also mentioned that the Social Bond format attracted a lot of the ESG investors, which is a fast-growing investor base. In the first SURE transaction, 63% went to ESG investors. So the EU became the largest issuer of Social Bonds and then the EU Social Bonds are the most liquid ones in that category. All these components, of course, attract more investors and, yes, this will continue, from my perspective. If we combine it with NGEU – a significant part of NGEU is currently planned to be issued in green bonds. So this will give this market another boost and attract the green bond investors. I’m very positive regarding the outlook here.

Peter Schaffrik: That’s great, and even if some of the funding is being front-loaded, are you confident that you will place all these bonds without any major problems?

Siegfried Ruhl: Yes, we are confident, of course. I just mentioned the attractiveness because of the Social Bond format, because of the Green Bond format. The higher funding volumes for the NGEU will give an additional improvement for the secondary market liquidity. A set-up of a primary dealer group will also support this. The repo market has started to grow, so all this will really put the EU on the scene as one of the largest issuers of Social Bonds, of Green Bonds. Investors will have the opportunity to buy the European credit via very liquid and safe assets. So this will also change the way that the European capital market is perceived by international investors – and I expect a decent increase in the investor-base on this level, which will help us to place the upcoming bonds in the market.

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Peter Schaffrik: Do you expect that the investor-base will come to see you more as a sovereign issuer of significant size or a very, very large supranational issuer? And, actually, does it make a difference?

Siegfried Ruhl: We are issuing on behalf of the EU, which is a political and economic union of 27 member states and 447 million citizens. The EU is one of the three largest economies in the world and, with an expected issuance volume of around €150 billion to €200 billion per year over the upcoming years, the EU will be one of the largest issuers in euros, which is the second largest reserve currency in the world. So, I’m not sure if the classification here between supranational or sovereign is really relevant. The funding approach, the funding volumes, will place the EU in the top rank of both categories, and we leave it up to the market to decide if and how they classify us.

Peter Schaffrik: You mentioned that the SURE bonds have been issued under the Social Bond framework, which is also in line with the ICMA’s guidance on ESG bonds. Can you describe the strength of this framework and the significance of it when managing bond issuance going forward?

Siegfried Ruhl: The funds that are raised for the SURE program are being transferred to the beneficiary member states to help them to cover the costs directly related to the financing of national short time work schemes and similar measures. And this is a response to the current pandemic. This is the very social nature of the use of proceeds and we put all this into a Social Bond framework compliant with the ICMA Social Bond principles. And, as I mentioned before, putting this into a Social Bond framework, issuing the bonds to fund SURE as an officially labelled Social Bond that is compliant to the social bond principles, from my perspective, is a core element of the success – because the ESG element is getting increasingly important for investors. Two years ago, I was at a conference, doing some speed dating with investors, and one of them was the shortest meeting I ever had. The investor was sitting down asking me, do you issue social bonds? I said “Not yet…” and he said goodbye. That was only two years ago and, in 2020 and with the pandemic, this market got a major boost. With the SURE transactions, the EU became the largest Social Bond issuer, the most liquid social bond issuer, and Europe now is leading globally in this market. Around 40% of ESG issuances are issued in euros and this is the largest currency here for ESG transactions. If you break it further down to the Social Bond market, two-thirds of social bonds globally are issued in euros. And, with the upcoming green bonds issued under NGEU, this market in Europe will get a further boost. So, the European capital market has already taken the lead in this market and this is a good starting point now to further expand.

Two years ago, I was at a conference, doing some speed dating with investors, and one of them was the shortest meeting I ever had. The investor was sitting down asking me, do you issue social bonds? I said “Not yet…” and he said goodbye. That was only two years ago and, in 2020 and with the pandemic, this market got a major boost. With the SURE transactions, the EU became the largest Social Bond issuer, the most liquid social bond issuer, and Europe now is leading globally in this market. SIEGFRIED RUHL

Peter Schaffrik: You mentioned that other parts of the market infrastructure, such as the repo market, have been developed fairly quickly, and I was wondering if we speculate a few years into the future, would you expect that some other parts of market infrastructure could follow – such as the creation of a future on the EU bonds, for instance? And could we see a scenario where the EU becomes the European benchmark?

Siegfried Ruhl: In the future, I see the EU as one important benchmark issuer, amongst others, and this gives also market participants, this gives investors a choice and, finally, that’s the beauty of diversity we have here in Europe.

45 | RBC CAPITAL MARKETS A LAND DOWN UNDER

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A LAND DOWN UNDER

The Kangaroo market has been challenged in the last year by lower supply volumes, but issuers have still been able to achieve larger transaction sizes in 2020 than were historically available. For many market players, it was a slow start to the year, but the second half provided opportunities for mid and long-tenor issuances. Nevertheless, it’s unsurprising that many issuers and investors are seeking diversification, across the curve, investors, currencies and green bonds, in this uncertain market.

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PARTICIPANTS:

Daniel Wilson Mascha Ketting Vice-President APAC Syndicate Manager of Capital Markets & Investor Relations RBC Capital Markets BNG

Anthony Ruschpler Andrea Dore Senior Treasury Specialist Head of Funding ADB World Bank (IBRD)

Lars Ainsley Senior Manager of Capital Markets KfW

Daniel Wilson: When looking at 2020 issuance volumes, it comes as no surprise it has been a challenging year for issuers in the Kangaroo market with supply down around 50% YoY vs 2019. However, throughout the year, the market has provided small windows of opportunity where pricing has aligned with issuers able to achieve larger transactions size than historically available in the AUD market. Can we all share our recent experiences in the AUD market in 2020?

Anthony Ruschpler: The year has been a bit of struggle to get anything substantial done in the Australian dollar market beyond reverse enquiry driven taps, with cost relative to US dollars a key consideration. Nevertheless, we remained engaged and have been constantly monitoring the Kangaroo market for issuance opportunities. Following earlier announcements on monetary policy, and market expectations that further likely easing may be on its way, we saw credit spreads, including SSAs, perform markedly in the secondary market and the environment looked constructive for a new mid-curve trade ahead of the RBA meeting in November and, to a lesser extent, the US elections. Given the general scarcity of paper and the market rally, we saw a healthy backdrop to capitalize on pent- up investor demand for a new long 5-year transaction that represented the first new mid-curve transaction from an SSA issuer in 2020.

Andrea Dore: Market dynamics made issuance challenging for us as well. We typically try to issue AUD benchmarks throughout the year, but this year, it wasn’t until later in the year that we were able to issue in that market. After monitoring the market very closely all year, fortunately, we were able to act quickly to issue a very successful dual tranche AUD benchmark in November. We issued a dual tranche 5-year and 10-year A$1.1 billion and A$550 million, respectively. This was incredibly well-received by the market and allowed us to meet investor demand from the different segments of the market.

Mascha Ketting: We are looking back at a successful year in Australian Dollars, with over A$1 billion raised in 2020. Issuance has been down compared to our record year last year (2019), where we were able to print over A$1.6 billion. We have been working continuously to build our footprint across the curve, when we returned to the mid part of the curve with our 5-year sustainability bond in 2019 and with targeted investor work. We experienced large initial – and domestic – demand when we launched our November 2023 line and ongoing demand for our longer dated lines.

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Lars Ainsley: In light of the difficulties 2020 has provided, we are also happy with our market access this year. Even during the most volatile times, we managed to raise significant volumes in the AUD market, and we are grateful for the strong relationship with our investors. While we haven’t been able to establish a new line, it was key to add liquidity to existing bonds.

SSA KANGAROO ISSUANCE

35 30.5 30 26.6 25 22.0 22.0 21.4 20.8 19.1 19.7 20 18.5 17.2 17.5

Volume (A$ bn) Volume 9.8 10

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: RBC Internal Database, 2020

Daniel Wilson: Since the RBA undertook further Monetary Policy easing in March and implemented a form of QE, we have seen a slight shift in issuance dynamics. The 2-3yr sector of the curve has accounted for 22% of overall supply (versus 4% in 2019) and the mid curve has accounted for 41% of supply, still remaining the sweet spot for both investors and issuers. Given the low yield environment, over recent months we have seen demand extend out to the 7yr point on the curve. However, the 10yr point still remains challenging for most issuers, which has historically been a key point on the curve for issuers in the Kangaroo market.

Anthony, following a period of limited supply, ADB ‘re-opened’ the market with a new A$750 million 5.5 year benchmark in late October, right before the Reserve Bank announced their full QE program on November 3rd. Did you notice any different investor demand dynamics to your previous experience in this point on the curve?

Anthony Ruschpler: We did see a fairly even split between offshore and domestic accounts in our A$750 million 5.5yr Kangaroo, with final placement leaning slightly towards international investors as central banks helped drive initial momentum in the orderbook. While there was certainly a lot of latent demand from past SSA redemptions trying to find a home, we did have a sense that offshore investors were more receptive to the attractive yields currently on offer in the context of further monetary policy easing to come.

Daniel Wilson: Mascha, in 2017 and 2018, 100% of your AUD issuance was in the 10yr sector of the curve. In 2019, we saw this shift to 68% with the issuance of a 6yr benchmark and in 2020, only 33% on the back of the 3yr benchmark. Do you expect this theme to continue where BNG remains active across the curve in the AUD market?

Mascha Ketting: In line with the increasing average duration of the asset side, we have been extending the average maturity of our liabilities as well. Of course, every single deal holds a balance between what we need and what the investor wants. We try to be flexible, as we are there for the long run, but we are relying on the basis swap. We experience demand across all tenors depending on the currency and type of investor.

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In line with the increasing average duration of the asset side, we have been extending the average maturity of our liabilities as well. Of course, every single deal holds a balance between what we need and what the investor wants. MASCHA KETTING

Daniel Wilson: The World Bank was able to achieve the largest Kangaroo SSA transaction to date, issuing a dual tranche A$1.1 billion 5.5yr and A$5.5 billion 10yr in November. The 10yr tranche was the largest deal in this point on the curve since 2012. What factors do you think led to the success of this 10yr tranche? Do you think this tenor will return to a benchmark point on the curve in 2021?

Andrea Dore: All the stars aligned for us, investor preference for longer tenor, yield pick-up in 10-year part of the curve and spread movement that was in the right direction for us. We also appreciated the timely and comprehensive market feedback from our coverage banks (like RBC), which enabled us to act quickly. The Kangaroo market is an important market for us. We will continue to be active in the Kangaroo market and will continue to ensure that we have liquid lines across the curve. If all the stars align again, we will be thrilled to return to the market. “All the stars aligned for us, investor preference for longer tenor, yield pick-up in 10-year part of the curve and spread movement that was in the right direction for us… The Kangaroo market is an important market for us. If all the stars align again, we will be thrilled to return to the market.” ANDREA DORE Daniel Wilson: Lars, KfW have tapped five different lines from the 2yr-6.5yr maturities in 2020. In a year that has been challenging for most European issuers, KfW has been able to remain flexible and move quickly to access the market when an opportunity presents. Has your strategy towards accessing the market differed to previous years? Will it remain the same in 2021?

Lars Ainsley: We are constantly reassessing our strategy and reacting in a flexible manner has been even more important in 2020 than in years prior. In past years, we have adapted to the shrinking of the overall market by reducing our minimum volume requirements and increased the volume cap to A$3 billion per bond. I believe that our current setup is adequate for the year to come as it gives us room for maneuver in challenging markets.

Daniel Wilson: Given the current travel restrictions and cancellation of the Kanganews conference in March, staying connected with the Australian investor base has been challenging. How has KfW managed to remain engaged with their global investor base?

Lars Ainsley: We believe that more than ever it is important to stay in contact with our investor base around the globe while travelling is not possible. Therefore, we held virtual investor meetings with the Australian investor community and the feedback was quite positive. Nevertheless, we hope to meet up again in person as soon as possible.

Daniel Wilson: 2020 has seen a large percentage of issuance into both EURs and USD, while currencies such as AUD, GBP and CAD have all seen reduced supply. How important is both investor and currency diversification to you all? Will there be an increased focus on this looking forward?

Mascha Ketting: BNG Bank is one of the largest issuers in the Netherlands with an average annual funding program of €15 billion to €17 billion. This year (2020) we have issued in GBP, AUD and SEK, besides funding in EUR and USD. It is very important to us to retain access to funding across the various currency markets for diversification purposes as we don’t want to be solely depending on EUR and USD. We strive to maintain a benchmark yield curve in both EUR and USD, hence we diversify issuance across currencies in order to keep flexible and to optimize the cost of our funding and to respond to investor demand.

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Andrea Dore: Last fiscal year, the World Bank (IBRD) raised about 16% of its record US$75 billion funding through GBP, CAD, AUD and NZD bonds. These are all strategic markets for the World Bank, where we will continue to issue. Our issuance volume in any currency is not only based on investor demand, but also market levels and comparison to other potential funding sources, so how much we issue is difficult to predict – but overall, we expect to continue to issue into these currencies at current levels.

Anthony Ruschpler: Investor and currency diversification remains central to our funding strategy however we remain vigilant on the after-swap cost as it pertains to the end-pricing we are able to pass on to our own clients. Where the cross-currency basis allows, we will look to issue in other currencies including EUR, AUD, NZD, GBP and CAD amongst others.

Investor and currency diversification remains central to our funding strategy however we remain vigilant on the after-swap cost as it pertains to the end- pricing we are able to pass on to our own clients. TONY RUSCHPLER

Daniel Wilson: Historically, the Australian market has been very receptive to SRI supply, with the market seeing significant growth over the past few years. Expanding on the topic of diversification, in 2020, around 80% of global ESG transactions were in EURs, whereas ESG supply in AUD has fallen 33% versus 2019, driven by a lack of SSA issuance in the sector.

After issuing the first ever green bond in the AUD market back in 2014, the World Bank has played a very active role in contributing to the growth of the sector. Can you talk us through the key differences between your green program and sustainability programs? Has COVID-19 impacted how you look at issuance in both of these programs?

Andrea Dore: All World Bank (IBRD) bonds are Sustainable Development Bonds and World Bank (IBRD) green bonds are a sub-set. COVID-19 should not have any impact on this, however it does present an opportunity for us to communicate and raise awareness with investors and capital market stakeholders about the critical aspects of sustainable development we finance.

With our bonds, we are communicating the environmental and social impacts of all the products, in various sectors, through which we lend to member governments. We want investors to understand the value and benefit of what the entire balance sheet finances – how it contributes to development and the SDGs, not only select environmental aspects such as our green bond portfolio. That said, green bonds are important and will remain important for us going forward, also because green bonds often serve as an entry point for investors interested in using their investments to overcome global challenges and we have an interest to support this market and these developments towards sustainable capital markets.

Daniel Wilson: ADB currently have two green bonds outstanding in AUD, the January 2024 which was issued as a straight 5yr and the March 2030 which was a 10.5yr. When looking at issuing in the AUD market under this program, what are the key factors when considering tenor?

Anthony Ruschpler: When looking at any market, we would target the tenors where investor demand is at its deepest and the all-in cost is favourable. In AUD, the benchmark tenors have traditionally been 5yrs and 10yrs, which is why you will find both our regular and green outings at these points.

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AUSTRALIAN BOND MARKET SRI ISSUANCE

12.0

10.0

8.0

6.0 A$ (bn) 4.0

2.0

0.0 2014 2015 2016 2017 2018 2019 2020

Source: Kanganews, 2020

Daniel Wilson: Mascha, BNG’s inaugural AUD sustainability bond was very well received from the domestic investor community, do you see an opportunity to return to the Australian market under this program?

Mascha Ketting: Based on a framework developed by the Sustainability Center of the Tilburg University, we already ranked all clients based on quantitative and qualitative indicators and mapped them to SDGs. From next year onwards we will also measure and report on our own impact, using four SDGs (Goal 3, 4, 7 and 11).

In Q1 2021, we will launch our renewed Sustainability Bond program to finance environmental and social activities of Dutch municipalities, which gives us more flexibility in issuing sustainability bonds and hopefully a chance to follow up on our previous success in the Australian Dollar market. Indeed, our 2019 inaugural sustainability transaction was very well received by domestic investors. It is definitely our intention to return given that we recently embarked on our “Road to Impact”, defining our direction and strategic priorities. Our priority is to maximize the social impact of our activities, not maximize our profits.

Daniel Wilson: Lars, in the five years since KfW’s inaugural Kangaroo green bond, how do you think investors attitudes towards ESG products have evolved? Has your experience in the Kangaroo market been similar to other jurisdictions?

Lars Ainsley: The development of ESG bonds globally over the past few years is exceptional, and this holds true for the Australian market as well. While other markets might be more mature on this front, we see AUD investors getting increasingly engaged and ESG will become mainstream rather sooner than later. We therefore plan to issue more green bonds into this growing demand.

The development of ESG bonds globally over the past few years is exceptional, and this holds true for the Australian market as well. While other markets might be more mature on this front, we see AUD investors getting increasingly engaged and ESG will become mainstream rather sooner than later. LARS AINSLEY

51 | RBC CAPITAL MARKETS THE IMPORTANCE AND BENEFITS OF A DIVERSE ISSUANCE PROGRAM

> HOME

THE IMPORTANCE AND BENEFITS OF A DIVERSE ISSUANCE PROGRAM

For issuers and investors, the COVID-19 pandemic has forced innovative thinking. A stay-at- home workforce had to come up with new ways to interact, internally and externally. Investors and issuers had to roadshow and meet virtually. And SSA issuers in particular were faced with new economic and political pressures, as nations worked to prop up economies in unprecedented circumstances.

The European Investment Bank has consistently remained committed to a diversified funding program; we spoke separately to different members of the team to discuss some of the key benefits of this approach and their thoughts heading into 2021.

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PARTICIPANTS:

Stuart McGregor Richard van Blerk

Stuart McGregor Managing Director Deputy Head of Benchmark Funding Managing Director RBC Capital Markets European Investment Bank (EIB) DCM Syndicate RBC Capital Markets London James Taunton Dominika Rosolowska Stuart joined RBC in 2012 after over 25 years’ experience in the financial markets. Prior to joining, Stuart spent 12 years at Merrill Lynch where he was responsible for Director Sustainability Funding Officer the Global SSA Syndicate and DCM desk. He has spent almost all of his 30+years in the market focused on the Public Sector debt market, helping to pioneer the newest RBC Capital Markets European Investment Bank (EIB) James Taunton growth segment of Debt markets by working closely with EIB on their first Green bond. Director, Debt Capital Markets RBC Capital Markets Eila Kreivi Nathalie de Weert London Head of Capital Markets Head of Public Markets Funding James Taunton works in the Public DCM team in London. European Investment Bank (EIB) European Investment Bank (EIB) He has 10 years of Capital Markets experience, primarily focused on the European Sovereign, Supranational & Agency sector.

He has been involved in the underwriting of over 500 transaction totalling over $150bn during since Nathalie de WEERT 2012; spanning a number of landmark transactions across the Benchmark, Risk Free Rate, ESG & Local Market spectrum. Head of Funding - Public Markets Capital Markets Department James was awarded GlobalCapital’s “Rising Star SSA Banker” in 2017 & 2018. European Investment Bank

He studied Economics and Politics at the London School of Economics & is a CFA Charterholder. Ms de Weert is heading the Public Markets Division. The division is tasked to raising funds in all public markets in non-benchmark format. This includes issuance denominated in currencies of well-developed markets like, among others, Euro, Sterling, Canadian Dollar as well as in emerging markets currencies. In 2020, EIB has raised around EUR 70bn, with a high level of currency EILA KREIVI, HEAD OF CAPITAL MARKETS.diversification, via issues in EUROPEAN16 currencies in addition to EUR and USD INVESTMENT. BANK (EIB) Before joining the EIB in Luxembourg, Mrs de Weert spent close to 10 years in The Netherlands where she was Senior Manager in charge of funding at BNG (Bank Nederlandse Gemeenten), the Dutch Public Sector Agency. Her professional background also includes Banque Indosuez Stuart McGregor: Obviously, Eila, 2020 is going to(currently be Crédit a Agricoleyear cib) andthat CEPME we (Currently all Oséo) remember., the French agency for SME You lending. run a very big team with

Mrs de Weert holds a Master degree in Finance.

a big funding program that looks at lots of different markets and making difficult choices is tough enough in a normal year. But with the year we’ve had, what was the biggest challenge for you? And what do you think was

the biggest positive takeaway from these events?

Eila Kreivi: Maybe I’ll start with the latter, because I think that the biggest positive for me was that all of this was actually feasible. And I think we all, and the market in general, have made a pretty good job out of this in spite of everybody working from home, and the volatility of the market, especially initially.

In our team, externally things have gone very well. We got the program done in a similar manner to previous years. So from the outside, looking at the numbers and the results, you wouldn’t even see that people were not working as normal internally.

But I think it was sometimes more challenging. Normally, we all sit in the same corridor and you can just go and have a chat with a colleague any time. But this year, you had to call people and organize meetings. Everybody was really conscious of external communication, because the market, our banks, our investors need to know what’s going on. But sometimes that focus on external communication overrode internal communication.

I think you have to talk internally as much as externally, because we have a fairly big team. People do different products, but they also operate in the same markets and we need to coordinate. That was much easier when we were sitting two meters away from each other.

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I think we have become used to this environment where you get 10 billion and 15 billion and a hundred billion order books in your deals. But I remember the days when central banks did not buy much of anything, not in QE terms, and bank balance sheets were not yet buying. At that time, an SSA deal that was fully sold was a roaring success. We can’t take this environment for granted. EILA KREIVI

James Taunton: Obviously, there’s more good news now than at many points this year; the global fiscal and monetary response has meant that markets remain highly receptive to issuance and we’ve got the vaccine being delivered in many countries, but there are still a number of challenges on the horizon, such as Brexit. As we go into January and 2021, is there anything on your mind specifically relating to markets that’s particularly challenging?

Eila Kreivi: I think that the biggest challenge is to operate a measured and orderly response going into next year. The European Commission has become, all of a sudden, a very large issuer. But they are not the only one. The member states in Europe are also very busy borrowing money. All the public sector issuers like us and our international financial institution peers, other multilateral institutions and national agencies are borrowing quite a lot. And globally it’s the same thing. The US Treasury is not exactly sitting on its hands, and it’s the same in Asia.

It’s a very, very busy year ahead of us. We just need to see that we coordinate so that we are not clashing exactly on the same day with exactly the same product in the market. There will be some overlapping moments, and I’m not worried about the demand side or the absorption capacity because with the central bank programs that are out there, I don’t think that is really the problem. It’s more about the organization of it all. We all have to play our own part.

I also think we have become used to this environment where you get 10 billion and 15 billion and a hundred billion order books in your deals. But I remember the days when central banks did not buy much of anything, not in QE terms, and bank balance sheets were not yet buying. At that time, an SSA deal that was fully sold was a roaring success. We can’t take this environment for granted. It’s a very good thing that we have that support now, with the crisis that we have had and are still having, we would be in a very dark place if this was not the case. But it’s not something that is there naturally and it will not be there forever.

So we are trying to behave in a way that would let us cope in any kind of market, and not just to rely on, for example, the central bank purchasing programs. I think that is something that one has to keep in the back of one’s mind going forward.

Stuart McGregor: One of the EIB’s strengths is the unique way you look at markets amongst your peers, having the different teams. You are able to get in-depth specialized information from each of those different markets about what’s going on, whether it’s regulatory change or dynamics within investor. And you also added a team a couple of years ago to make sure you had a core competence in the growing ESG markets. That’s something that made accessing liquidity a lot easier because you had so many more currencies that you could tap into, where over the years you’ve built up an understanding of the domestic investor base.

But now, with the QE going on in Europe at the moment, it’s obviously drawing a level that makes cross-currency comparable levels harder and harder to compete with. As you go into 2021, how are you internally thinking about the approach to the market when it looks like euros will continue to be the most attractive currency by a margin? Will you look to keep your presence in other markets as a benchmark issuer in place?

54 | RBC CAPITAL MARKETS THE IMPORTANCE AND BENEFITS OF A DIVERSE ISSUANCE PROGRAM

Eila Kreivi: That’s a good question. Our outlook on this thing has been the same over many, many years. There was a time, for example, when the US/Euro basis was a positive. So that you actually could get a better cost in issuing euros than in dollars. And ten years ago, it was like that for a long while. And then people were asking, should we really issue in dollars anymore? Because you don’t get the cost advantage anymore. But we issue in these large markets all the time, because we want that diversification.

Now, that scenario is almost the same with a large number of currencies. There’s very little cost advantage in going to the smaller markets anymore. But I don’t think that’s a permanent phenomenon. The activities of the central banks have compressed all the assets swap levels so much that there’s hardly any difference. And that’s a natural state of affairs in the world where central banks are the major players in the market. But that’s not going to be the case forever. We will go back to that world where these differences exist.

And of course there is investor diversification. I’ve looked at our non-core currencies versus the big currencies. There’s a much, much bigger concentration in fund management business there as buyers than there are in the big currencies, Euros and Dollars, and also to a large extent Sterling. The core currencies go to central banks and bank treasuries, they take the lion’s share in all of the issues. Whereas when you go into the smaller currencies, you get a lot more fund managers active there because they pick the currencies where yields are higher or they are playing some currency game.

And also, when we go to the markets in Canada, Australia, or we offer things that the Japanese investors like, we get some feedback from them also. How the slightly smaller investors see the state of the affairs in Europe. It’s a very interesting angle and an interesting indicator of the investor sentiment on the ground.

So we intend to keep this approach of operating in many currencies. Of course, we are not paying up for instance 25 basis points to issue a currency that gives fairly small amounts. But as long as we get it at a reasonable cost compared to a benchmark funding, then I think that’s fine.

There’s very little cost advantage in going to the smaller markets anymore. But I don’t think that’s a permanent phenomenon. The activities of the central banks have compressed all the assets swap levels so much that there’s hardly any difference. And that’s a natural state of affairs in the world where central banks are the major players in the market. But that’s not going to be the case forever. EILA KREIVI

Stuart McGregor: You spoke earlier about communication being most important during the middle of the crisis with investors and with the banks. We know you’ve done the work online to investors directly and you’ve done some work with your neighbors at the commission to do broadcasts. But there’s a big difference between broadcasts and one-on-one interaction. So what have you got in planning for next year to continue that level of dialogue and information with investors on a more personal level?

Eila Kreivi: I think I would be very surprised to see anybody’s travel hours go back to the levels that they were in 2019 and before. People have learned now how to use online tools. We tried a year or two ago to ask people, especially in the US and Asia, to consider video-conferencing. But nobody was very willing to do that and many people did not have the best technology for it. Now, of course, everybody has all the capabilities because you needed to have them this year. So I think that will become a better tool.

55 | RBC CAPITAL MARKETS THE IMPORTANCE AND BENEFITS OF A DIVERSE ISSUANCE PROGRAM

But I have to say that some personal interaction is also good; once in a while, maybe a bit less often than before. And group events; if one day we can do conferences again, they are beneficial. Because nowadays, if you go to a conference, you do a one-hour appearance on some web platform. You don’t meet anybody, you don’t hear any of the other program because you have to run after your own agenda. And at these events, you usually hear about interesting things that can give you new ideas and new thoughts – what to do next or what to do differently. And I think that is something that is missing today.

So I think we’ll go hybrid. It’s certainly easier to engage lots of investors now. If you’re going to the United States, for example, it’s easy to go to the large cities on the coast. But if you want to reach investors who are not located in New York or Boston, or in a couple of cities on the West Coast, it adds up to a lot of air miles and a lot of traveling and time to cover all the investors that you would like to see. Where people are very spread out, video-conferencing tools are invaluable, especially for one-on-one meetings.

But if you want to go to Tokyo, for example, then you can have a full week of meetings there without moving around too much, which is fairly efficient. So it depends. We haven’t entirely made up our minds how we will do roadshows.

I’m sure in Europe, we will be able to start meeting some people in the spring, or at least in the summer, once we get the vaccines going. Longer haul travel is probably going to take some time, maybe a year from now, so that we are not even planning. We’ll have to see how it goes.

Stuart McGregor: Obviously, we don’t know what the work environment will be like next year. But do you think having a more flexible workspace is healthier for people? Or do you think you’ll have the team back in five days a week when you can?

Eila Kreivi: I think that will be in some sort of hybrid format as well, because life is a lot easier when you have flexibility. And I’m not only talking about people who have small kids. It’s very practical for everybody. Sometimes you have things for which you have to stay at home and now you can stay there with your laptop and work, you don’t need to take a day off. Or maybe you want to go to see your family, but you don’t want to take holidays for that, so you take your laptop and you can work. Work-life balance becomes much easier to do when you can work from home.

And I have to say, the kind of hours that I’ve seen colleagues do in this year, if they had had to stay in the office to do those hours, I think a lot of people would have reached the end of their energy. The fact that people have been able to work from home in these crisis circumstances has allowed people to put in a lot more hours than they normally would have.

James Taunton: We’ve talked a lot about innovation in terms of the work-life balance and investor interaction. But the EIB has always been known in terms of innovating in markets as well, not least through the evolving risk-free rate space and huge strides in the ESG arena, but, as importantly, the EIB has been seen as the name to reopen markets. How do you view yourselves as an issuer to reopen markets after challenging periods?

Eila Kreivi: I think everybody has their specialties and especially in the markets where we are quite active and one of the established names, like the Euro market or the Sterling market, it is quite natural for us to go and test the waters in the market. Because if we don’t do it, then who should do it? It’s that way around. Whereas, opening up new markets in far corners of the world, that’s not something that we are profiling a lot of. That we have left to the peers who have those countries, for example, as their shareholders or their members.

It’s each their own specialty. And in terms of products, we are not very much into very exotic products either. The risk-free rate is something that we, as a public sector entity, have felt strongly about, and that’s why we have been so active in bringing new risk-free rates and structures, and especially with the new indices. So it’s not that we want to do everything, everywhere, all the time. We pick our situations and the products that we think that we can bring some value-add to.

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RICHARD VAN BLERK, DEPUTY HEAD OF BENCHMARK FUNDING, EIB

James Taunton: The Benchmark team have clearly had a phenomenal year in 2020, across both EURs & USDs; what specific transactions or moments stand out to you?

Richard van Blerk: A rising tide lifts all boats, and that’s the spirit in which we would view our funding experiences in 2020. Across currencies, SSA paper initially widened both versus govvies and swaps and in a world of rates that were going to zero and/or beyond, SSA quickly became a popular safe asset. That rings as true for the EIB as it does for any of our peer issuers; but if we would have to single out any specific transaction, we would probably point to the €3 billion May 2023 EARN that re-opened SSA EUR markets after the virus went global and risk markets collapsed, triggering the Fed and the ECB into unseen levels of emergency support while sending the financial world (including the EIB) into WFH.

James Taunton: Looking back at the year with the success and smooth progression you have made throughout, you’ve handled the circumstances this year exceptionally well. With the EIB re-opening markets on several occasions, does the EIB continue to see itself as the issuer to re-open markets in challenging circumstances?

Richard van Blerk: To be in the front of a line-up of SSA issuers is not uniformly beneficial. After a pause, investors often need to be enticed into participation, so in cost terms, going first might not be optimal. In terms of investor access, however, going first clearly has some benefits, with extra control over pricing helping to make it at times our preferred path. Having said that, first mover advantage seems to be more present in USD SSA markets than in EUR SSA markets, where investor capacity perhaps is less of a concern.

James Taunton: If you were to characterize the key strengths of the EARN & USD Global programs, what key factors would you highlight?

Richard van Blerk: If there is anything that sets the EIB benchmarks apart from other SSA issues, we would like to believe that would be our market-driven approach. With benchmark issuance around 60% of our total funding program, our benchmark product is in a position to deliver frequent, large, and liquid issues in both EUR and USD markets aimed at the preferred timing of the investor base. We should acknowledge, however, that the remaining 40% of our funding has to get done, taking into consideration the constraints that come with the benchmark team’s ambitions to time its bond issues to the markets’ liking. In that sense, it is the way we have set up the funding function at the EIB that gives the benchmark team the freedom to target market-driven issuance.

To be in the front of a line-up of SSA issuers is not uniformly beneficial. After a pause, investors often need to be enticed into participation, so in cost terms, going first might not be optimal. In terms of investor access, however, going first clearly has some benefits, with extra control over pricing helping to make it at times our preferred path. RICHARD VAN BLERK

DOMINIKA ROSOLOWSKA, SUSTAINABILITY FUNDING OFFICER, EIB

James Taunton: How does the EIB Group’s Climate Bank Roadmap 2021-2025 differentiate the EIB in its approach, and how has the initial market/investor perception been?

Dominika Rosolowska: In late 2019, the EIB announced a set of far-reaching targets for climate and environment – including a phase-out of most fossil-fuel lending, an increase in the share of financing dedicated to environmental sustainability, and alignment of all the bank’s operations with the goals of the Paris Agreement.

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Adopted a year later, the Climate Bank Roadmap aims to ensure that these bold commitments find their practical implementation. Importantly, the Roadmap commits the EIB to align its definitions and tracking methodologies for climate and environmental finance with the framework defined by the EU Taxonomy Regulation.

On the funding side of the bank, this commitment is reflected in the use of proceeds of Climate- and Sustainability- Awareness Bonds. CABs focus on climate change mitigation while SABs span other environmental and social objectives. Both have their proceeds allocated to investments evaluated through the prism of the EU Sustainability Taxonomy – the EIB being the first issuer to build such an approach into its bond documentation. This year, 15% (€10.5 billion) of the bank’s overall funding volume was raised in CABs and SABs.

James Taunton: Clearly the SRI landscape continues to rapidly evolve, with the EIB’s market-leading CAB/SAB framework helping to further expand the diversity of investor access across markets; is there any market which particularly stands out to you in terms of growth this year or looking to 2021?

Dominika Rosolowska: While the euro continues to account for the largest share of CABs and SABs, this year was also marked by our strong presence in USD (US$3.5 billion raised across three global transactions), followed by GBP and SEK. Of the 12 different currencies accessed in 2020, Norwegian Krona and Hong Kong Dollar were new to the CAB format – allowing us to cater to local demand.

We are happy to see that EIB’s approach to sustainability funding resonates with investors outside of our European home turf, in particular as more jurisdictions undertake their own efforts in the area of green/sustainability taxonomy – either at the initiative of the public - or private sector. Australia and Canada for instance are two markets where we seek to refresh our CAB curves and continue providing liquidity; we would be happy to revisit these soon in 2021.

This year, CABs and SABs were the Bank’s second-largest source of funding, trailing only the benchmark program. The unique circumstances of 2020 – WFH and execution of trades outside of the familiar office environment – have rendered this result even more special for our Sustainability Funding Team. DOMINIKA ROSOLOWSKA

James Taunton: All of the teams clearly had a phenomenal year in 2020 but do any specific transactions or moments stand out to you?

Dominika Rosolowska: This year, CABs and SABs were the Bank’s second-largest source of funding, trailing only the benchmark program. The unique circumstances of 2020 – WFH and execution of trades outside of the familiar office environment – have rendered this result even more special for our Sustainability Funding Team.

Of the specific transactions, two in particular stand out in my memory. One was the inaugural USD Global SAB back in May, immediately followed by our first-ever Kangaroo SAB launched on the other side of the globe. Those were an exciting couple of days!

The other one was the EUR 2035 CAB. Issued on the day of the final approval of EU Taxonomy Regulation, it also marked the extension of our CAB-eligibilities – in line with the framework set by that regulation.

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NATHALIE DE WEERT, HEAD OF PUBLIC MARKETS FUNDING, EIB

James Taunton: All of the teams clearly had a phenomenal year in 2020 but do any specific transactions or moments stand out to you?

Nathalie de Weert: There are a few deals that stand out in 2020. We kept our tradition of opening the GBP market in the early days of the year and launched a new three-year on Friday Jan 4th that collected close to £3 billion of orders; the deal was followed a few weeks later by a new seven-year with a record £3.2 billion book. Despite the overall decline in GBP SSA issuance in 2020 compared to 2019 (excluding UK DMO), PUMA increased its volume by 35% in three different tenors, ranging from three to seven years. The other moment that immediately comes to my mind when looking back at 2020 is when I saw the book of our 20-year new ECOOP line cross the €8 billion mark, a record for that program. We had picked the first window available on a Friday morning right after the ECB announcement of QE extension in June and benefited from the momentum that followed.

James Taunton: Clearly working arrangements have been a challenge this year, but the team has managed to consistently access and re-open markets, both pre- and post- the COVID-19 volatility; how has the team managed with the work-from-home/split-location situation?

Nathalie de Weert: We were actually already testing working from home for a part of the team when the lockdown started in Luxembourg. Our IT systems were working remotely, so we were able to be operational straight away. That said, the first weeks were challenging with high volatility and poor liquidity, and it is one thing looking at screens isolated in your house (sharing your feelings with the cat!) and another being able to immediately share impressions with colleagues on site.

From the start, we set up team calls twice a day and chatrooms were actively used to exchange information with the EIB teams and our dealers. Having long-standing relationships with banks and investors obviously helped to keep in close contact with the market and allow us to seize opportunities. The WFH experience wasn’t the same for each of us though. While I was struggling with a tiny laptop and decided to come back to the office as soon as it reopened, some of the PUMA members actually enjoyed the flexibility of being able to work from remote places (as far-flung as northern Sweden, Portugal and Greece).

We were actually already testing working from home for a part of the team when the lockdown started in Luxembourg. Our IT systems were working remotely, so we were able to be operational straight away. That said, the first weeks were challenging with high volatility and poor liquidity, and it is one thing looking at screens isolated in your house (sharing your feelings with the cat!) and another being able to immediately share impressions with colleagues on site. NATHALIE DE WEERT

James Taunton: Have there been any key benefits from the new working arrangements? For example, in terms of investor marketing?

Nathalie de Weert: There have definitely been benefits in terms of marketing. The first that comes to mind when working for the EU Climate Bank is the reduction of travel and the impact on our carbon footprint (although we used to compensate it). Another one is the higher flexibility regarding timing of investor meetings and the increased efficiency. Having conference calls instead of physical meetings also allowed an increase in the number of staff (from both sides) who would participate. This often led to more interesting conversation and more informative exchanges.

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CONSISTENTLY CONSISTENT: Now and Next for Europe’s Public Sector Agencies

In the midst of the COVID-19 pandemic and alongside largescale market changes and the fallout of Brexit, the SSA market had a constructive 2020 – absorbing far greater volumes versus 2019, at arguably minimal new issue concessions.

In fact, since the start of the pandemic, every month has seen combined USD and EUR issuance significantly elevated versus 2019, with transactions continuing to attract record orderbooks.

As we approached the end of the year, we spoke to a number of Public Sector Agencies across Europe and asked them to share their views on the trends we have seen in the SSA sector in the past 12 months – and what they might mean for 2021. They review the record-breaking transactions we have seen in 2020, the development of the long-awaited EU SURE program, an exceptionally strong year in the US dollar market, the performance of the Sterling and Kangaroo markets, and the continued development of alternative risk-free rate issuance. In addition, they look forward, sharing their views on the opportunities and concerns in 2021.

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PARTICIPANTS:

Andrea Jelic Tom Meuwissen Director of SSA DCM Treasurer Andrea Jelic RBC Capital Markets NWB Bank

European SSA Origination, Debt Capital Markets RBC Capital Markets Eleanor Singer Anish Gupta London Eleanor Singer Vice-President of SSA DCM Managing Director, Head of Treasury Vice President RBC Capital Markets Oesterreichische Kontrollbank AG Andrea Jelic SSAis a DirectorDCM Origination in the RBC SSA DCM team in London. RBC Capital Markets She has over 13 years of Capital Markets experience, predominately focussing onSven Lautenschläger Anna Finnskog London European clients. She has led the origination of a number of milestone transactions acrossHead of International Refinancing Funding Director a broad range of products including Benchmarks, new Risk Free Rate Issuance, Local Eleanor Singer is a Vice President in the SSA DCM Origination Team at RBC Capital Markets. Landeskreditbank Baden-Württemberg Swedish Export Credit Corporation currency (inc. Renminbi and Panda bonds), Green/Social/Sustainable Bonds, Inflation- C U R R I C U L U M V I T A E Eleanor joined RBC & the team in 2015 after graduating from Loughborough University. Linked bonds and Capital issuance, and several inaugural transactions.

She has a BSc degree in Business, Mathematics and Statistics from the London School ofFrank Richter

Economics (LSE), and is married with one child. Executive Director

Head of Investor Relations Anish Gupta NRW.Bank

Managing Director Head of Treasury Oesterreichische Kontrollbank AG

2016 Managing Director, Head of Treasury Major focus has been capital markets, liquidity management, investments, derivatives, and asset liability management. 2020 has been an extraordinary yearHe is aon member many of the fronts Asset Liability and Committeeone we of won’t the bank. forget. Although it has brought a number of challenges we have also been pleasantly surprised with numerous record breaking transactions throughout 2013 Senior Director and Deputy Head, International Finance the year. We asked each issuer to Departmentcomment on their funding programs in 2020, the impact from the pandemic and what they expect in 2021. 2000 Joined OKB as Assistant Manager, International Finance Department, responsible for the funding and risk management activities for the Austrian Export Finance System. Anish Gupta: The funding volume for 2020 was higher than we had anticipated at the beginning of the year. This was primarily due to increased lending in the normal course of business and partly due to the COVID-response measures. As the agency for the Republic of Austria for export finance, we were asked by the government to increase lending primarily for the working capital requirements of exporters. As the need was acute and at short notice, we were able to use existing programs for lending. This year we issued long-term debt to the tune of €5.5 billion, slightly less than €5.7 billion in 2019. The last couple of years were substantially higher than the long-term average of three to four billion euros in the past years. Our issuance strategy has been the same this year as in the past actually, except for the fact that certain markets such as AUD and GBP have been absent as attractive funding sources this year. Our funding requirement for 2021 is €5 billion and we expect to be able to fund this throughout the coming year without having the need to pre-fund this year.

Anna Finnskog: Due to record lending volume, funding volume is up around 50% compared to the original plan for 2020. In the beginning of the pandemic, the demand for financing from our clients increased sharply. To meet this demand, SEK was on March 30 the first agency issuer to enter the US Dollar market after the volatile market conditions that followed the COVID-19 outbreak, doing a 3 year US$1.75 billion benchmark, the largest ever in SEK`s history. In total, SEK has done eight USD public issuances, including four benchmarks, which have all been oversubscribed. The number of private placements have decreased a lot compared to 2019.

Tom Meuwissen: In 2020, NWB funded €13.5 billion. The target was ten to twelve billion euros, however we were active in prefunding towards the end of the year issuing a US$1 billion 5-year due to the exceptionally good market circumstances. 33% of our funding in 2020 was in green and sustainable bonds. These were mainly in EUR and USD. More than 90% of our funding was done in these currencies anyway, since diversification opportunities in other

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currencies like GBP and AUD were not that attractive in 2020. Normally our funding up until a 5-year maturity is in USD and beyond that, EUR is more attractive. This year however we managed to issue a successful 10-year USD benchmark for the first time since 2016.

COVID-19 had a big impact on the spread development due to the uncertainty in the beginning of the pandemic of course, not so much on the funding volume needed by us, although on the lending to clients the volumes were a bit higher than expected.

Sven Lautenschläger: Overall, despite the COVID-19 situation, our funding program has not changed significantly. That is mainly due to the fact that the focus on the self-employed and small companies was done by the federal state and support for the larger companies was mainly done by the German government. L-Bank have implemented a couple of lending programs in the context of COVID-19, but the take-up there is still quite defensive because most of the real lending is done by KfW, organized by the German government.

Given the favourable market conditions, we did a bit of pre-funding with a 5-year dollar transaction - going into the market again just before year-end was a very good step. In 2021, we have more than eight billion euros-equivalent of bonds maturing, and as our average funding is between five and seven billion, we didn’t really want to go above that in the planning for 2021.

Frank Richter: If you look into the figures and where we are today, it looks like it’s been business as usual. But, of course, we did see some sources of uncertainty from the COVID-19 pandemic. In the beginning – in Q1 and Q2 – we were not sure if the COVID-19 rescue or stabilization methods would have an impact on our funding program. That impact didn’t materialize but, believe me, we were prepared. We were ready for the additional lending to the economy and we had the lines in place. As is typical for the German federal structure, KfW takes all the responsibility and we work closely with them, distributing their funds into the region. They were so successful that we did not have to give additional aid or additional support into the region. But there was clearly uncertainty at the beginning of the pandemic.

A key talking point in the second half of 2020 was the long-awaited EU SURE program. We didn’t see the spread widening some participants were expecting and overall the huge increase in volumes were very well received. With this large increase in supply continuing in 2021, many are wondering if there is sufficient depth in the market, particularly in the January and February rush, to absorb the volume and how issuers expect this dynamic to play out with respect to non-EUR currencies.

Anish Gupta: The supply that is expected and indeed that has already been seen in 2020 will be a major issue for the EUR market in the coming years. The fact that the increased issuance will be met by an increased QE effort by the ECB should help to alleviate fears of a market being flooded by issuance without the necessary investor take-up. The normal issuance frenzy of the first two months will be even more relevant for the SSA sector in 2021, but we would not expect any major shift in the spread environment on account of this increase. Indeed, in order to navigate one’s own issuance with the backdrop of the increased EUR supply, the possibility of diversifying into other currencies will be even more relevant and play a more strategic role for SSA.

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Tom Meuwissen: Experience of 2020 shows that huge issuance (by the EU) doesn’t have to lead to wider pricing. Apparently, there is more than enough depth in the market, mainly due to the ECB buying of course. Therefore, we also don’t foresee too much impact on the spread environment for 2021. However, it can be that other currencies may become more relevant compared to euros. For us that could mean some growth in for instance GBP and AUD issuance, but that will mainly depend on the basis swap. We always try to be as flexible as possible when it comes to other currencies, structures, sizes and maturities.

Sven Lautenschläger: In my forecast about the EU, I’ve been quite wrong. Firstly, the market access from the EU was very well managed and they prepared the market in a reasonable way, helping to position themselves in a way that will allow them in the future to benefit from favorable terms and conditions. I think issuers who do not have to be in the market in January should give way to the EU and let them do their funding as the market impact and the volumes they absorb are very significant.

The EU might need to do the next step and start to position as a real government entity, putting them more into the peer group of German bunds, of OATs, of Belgian government bonds. In principle, they are in government bond ABS, so to say. And when you’re such a government-like institution, you have to position yourself there and that will open up a significantly wider investor base and with that the market impact can be significantly reduced. But I’m of good hope that they are going to manage that quite well.

Frank Richter: I believe as well that the EU will be traded over time closer to the sovereign levels than to the MDB levels. I think that will be a logical consequence of the size and the rating of this issuer. In terms of spreads, don’t forget there’s also a big buyer in the market, and that’s our friends at the ECB. They could absorb easily up to 50% of these additional volumes. At NRW.Bank, we believe in our strengths and we have a good profile in niche markets. And these niche markets are getting more and more important for us, given the huge competing supply from the EU. The ticket sizes here are five million here, ten million there, 30 million there – these are relevant tickets for us, but not for the big issuers. So if you are looking for 200 billion every year, like the EU, you do not care about 10 million tickets. But we are doing those tickets, and it gives us a nice market. The other thing is that the EU is only active in euros. But we are quite established in foreign currencies, and we are quite well connected in Australia, in the Dollar market, to the central banks, to Japan, to Japan insurance companies and so on.

Away from EURs, we have also seen an exceptionally strong year in USD in 2020, with the market successfully absorbing the large increase in supply and remaining open all year for issuance, including even at the height of the pandemic. We asked how important the USD market is for each issuer’s funding program and if they expect even more focus on USD as a result of increased volume and congestion in EURs as well as the recent trend of duration from the USD market.

Anna Finnskog: The US dollar market is already the most important market to SEK´s funding program. US investors are very active buying SEK (20% of our funding from Q1 to Q3 2020), but also many investors around the globe are buying paper denominated in USD. Almost 75% of the bonds that we issued from Q1 to Q3 this year was denominated in USD. The typical two- to three-year tenors, sometimes five years, suit us well. The fact that duration is more readily available in USD is therefore not a development that is important for us.

Anish Gupta: The US Dollar market is very relevant for our funding program. From an investor standpoint, it also represents the only way to invest in an Austrian sovereign credit in dollars. We have been issuing in USD global benchmark format regularly, bringing at least two such transactions each year. The need for duration for OeKB is not pressing as our ALM needs dictate the sweet spot between three and five years – these being the maturities readily available to us in the USD market.

Frank Richter: The Dollar was and is still our second strategic currency beside the Euro. In the past, and also in 2020, our two traditional strategic fixed benchmark bonds have been one bond in US Dollars and one bond in Euro denominations. We did our regular US Dollar fixed bond with a five-year tenor and, besides that, we also were active in the arbitrage market. For us, the market in US Dollars at the moment still ends with five years, more or less. Therefore, the US Dollar

63 | RBC CAPITAL MARKETS CONSISTENTLY CONSISTENT: NOW AND NEXT FOR EUROPE’S PUBLIC SECTOR AGENCIES

will still be one of our strategic currencies and we will definitely look into US Dollar funding in 2021 again. And maybe then we can look at something like 60% of our funding in Euros, 30% in US Dollars and the remaining part in other opportunistic currencies.

The Sterling and Kangaroo market have seen lower issuance volumes in 2020, partly as a function of the increased concentration of USD and EUR benchmark volumes alongside less favorable all-in levels rather than concerns around demand. Subject to funding levels, it was interesting to know if issuers were expecting to be more active in non-core currencies in 2021.

Tom Meuwissen: Over the last few years, the combined market share of our EUR and USD funding has been over 90%. That is mainly due to the favorable funding conditions in these currencies because of the QE buying program of the ECB and the Level 1 status of our bonds as a high-quality liquid asset. That makes it difficult to find better arbitrage in other currencies. Our view is that this is a luxury problem, but we always remain very much focused on diversification among currencies and markets. Especially in 2020, the opportunities in AUD and GBP were limited. We have good hopes that this will improve in 2021 but it will very much depend on the basis swap. There is no doubt that there is plenty of demand by investors in the non-core currencies.

Anna Finnskog: Similarly, we would be happy to do more in both GBP and AUD. However, it also depends on how attractive the basis swap to USD is for us, since we are a USD-based issuer. We would also like to be more active in Swedish Krona in 2021. Although SEK is a Swedish company, we have historically not been particularly active in the Swedish market. However, in 2020, that portion increased to over 10% (Q1-Q3) compared to about 3% in the same period of 2019. Part of the reason is that we have issued more green bonds in the Swedish market this year and we will continue to keep an eye on possibilities to issue in the Swedish market.

Anish Gupta: After being very active in both Sterling and Kangaroo markets in 2018 and 2019, the lack of opportunities in 2020 has been disappointing. Both AUD and GBP have been an integral part of our funding mix in the past years. So, in 2021, we will strive to return to these markets and will be actively looking at opportunities as they arise.

Sven Lautenschläger: The Australian market is a bit of a challenge as the QE dynamics there and the purchase program really caused the SSA sector to be more sidelined in terms of demand. Furthermore, the less-favorable interest rate and absolute yield levels versus other currencies hasn’t really played into the cards of Aussie Dollar investors who normally look at the SSA sector. I am a bit sceptical about getting a clear picture in 2021, as we have just recently seen the downgrades of some of the semi-government bonds – it is unclear how the impact on the overall spread differentials between the commonwealth governments, the semis and the SSA sector plays out. We haven’t given up hope and still want to be active in this market. We are in constant dialogue with the DCM teams and investors in the region and as soon as we see opportunities, we are happy to look at them. Overall, I would say, the kangaroo market is more challenging than the Sterling market, which is not so difficult to generate decent demand for a new transaction.

The events of 2020 have had a deep and broad-based impact across institutions, so it is not difficult to imagine that this may have also had a bearing on SSA investor dynamics. We were curious to know if this had indeed presented itself in orderbooks and also how issuers had navigated the various travel restrictions to maintain regular dialogue with accounts.

Anish Gupta: From our experience in 2020, the most important change was the sheer size of order books that came about. The quick build-up of books was ever more evident this year compared to the past. This also meant being quick in messaging and finalizing size and pricing objectives. Our books showed very similar make-up in terms of investor and geographic distribution as previous years. The obvious trend in fixed-income markets has been the search for yield and spread. The backdrop provided by the extraordinary quantitative easing policies of major central banks will be with us for a few more years, so this trend may have some time to run yet.

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Virtual roadshows are here to stay. Even after the lifting of travel restrictions some part of investor relations will take place in a virtual format. A combination of in-person and virtual will be our aim to maximize our effort in this area. Both formats have their pros and cons and hence flexibility will be key. We have already had a few virtual investor meetings and expect this to increase substantially in 2021. This year was more a case of wait and see, whilst 2021 will be more of a strategy.

Frank Richter: Our final clients are asking for longer tenors and, of course, if you have proper asset liability management, the funding side should follow the loan side and that is happening. If you are looking for longer tenors, you should ask yourselves where you could achieve these, and then you will come to the conclusion that the focus should be on the EUR market. However, the AUD market is able to offer long tenors to us as well. That leads to a shift in the investor base. We have more bank treasuries and asset managers in our funding programs this year, due to the duration decision and due to the currency decision linked to that. We also have more and deeper access to theme investors on the green and on the social side. Therefore, I would say our investor base has broadened a little bit this year, and that is quite a huge effort for a mature issuer.

Anna Finnskog: We have not noticed any major change in investor dynamics. However, central banks continue to be very active. In the three-year benchmark that we did in September, the allocation to central banks and official institutions was the largest in any of our benchmarks over the last seven years, 67%. We have done less investor work in 2020 than we normally do, but we plan to be more active in 2021 again. Hopefully travel will be possible later in the year, but for now, we are planning to set up virtual roadshows and investor calls.

Sven Lautenschläger: The trend I’ve been worried about for many years has continued; the investor base and the types of investors are shrinking. In the past, we had insurance companies, asset managers, central banks, official institutions, bank treasuries, and now we have come really down to the point where the bank treasuries and the central banks are mainly driving the transactions. The takeaway from our most recent transaction is that now even the bank treasuries are starting to disappear a little bit, especially in such a tight market environment. Being dependent on one single investor group, the central banks / official institutions, is something that is very worrying. This trend is also difficult to change as it’s mainly a factor of absolute yield and we have no impact on the absolute yield and are not really keen on paying up significantly above market levels – L-Bank always want to pay rates in the context of the market, and that makes it really difficult. My personal view is that just relying on the ECB and central bank purchases in the long run is not the right strategy, and the long-term negative impact will be significant if the situation is not properly managed.

Despite all the events in 2020, we have continued to see the Risk-Free-Rates markets develop during the course of the year, including the emergence of the SONIA and SOFR Index issuance. Given the continued transition away from LIBOR and impending deadline, we asked whether issuers were planning to be (more) active in 2021 and what Risk-Free-Rates they are currently set up for.

Sven Lautenschläger: Our next project is starting to implement the SOFR index-linked coupon that will take maybe six months. In the meantime, we can still issue under the normal SOFR terms, however we also want to offer investors the choice between what we’ve done in the past and what now seems to be the market standard in the future, so that’s why the floating rate products are definitely going to be in focus with the risk-free rates.

65 | RBC CAPITAL MARKETS CONSISTENTLY CONSISTENT: NOW AND NEXT FOR EUROPE’S PUBLIC SECTOR AGENCIES

In the past, we had insurance companies, asset managers, central banks, official institutions, bank treasuries, and now we have come really down to the point where the bank treasuries and the central banks are mainly driving the transactions. The takeaway from our most recent transaction is that now even the bank treasuries are starting to disappear a little bit, especially in such a tight market environment. Being dependent on one single investor group, the central banks / official institutions, is something that is very worrying. SVEN LAUTENSCHLÄGER

Anna Finnskog: We also plan to be active issuing SOFR bonds in 2021, and potentially SONIA as well. We issued our first SONIA bond in 2019 and in November 2020 we issued our first public SOFR bond, which was also the first public SOFR bond in the market with a high coupon and the first ever SOFR index-linked benchmark issued by a public agency.

Frank Richter: Yes, we plan to be active in 2021, and we were already active in these new risk-free rates, with the inaugural SONIA bond. We are also technically able and will look into the ESTR. And, in terms of SOFR, it’s on our list for 2021.

Tom Meuwissen: It depends on how much demand there is but we will definitely issue RFR in the future. At the moment we are preparing our systems and I have good hopes that we will do our first issuance in 2021.

Anish Gupta: Our institution is currently running a bank-wide IBOR-replacement project. We expect our systems to be ready by mid-2021, which would allow for issuance, lending and hedging using the new RFRs. Certainly, both SOFR and SONIA-based issuance is part of the medium- to long-term plan and ideally we would like to issue in these two formats as early as mid-2021.

ESG volumes have continued to increase substantially, especially in Social Bond format. We asked the issuers about their plans for 2021, including themes they expected to see going forward.

Tom Meuwissen: We have committed ourselves to have at least 25% of our annual funding program, normally around €10-12 billion, issued in green and sustainable bonds. Overall, we have issued over €16 billion in these bonds so it’s of high importance to us. In terms of changes in this space for NWB, they have mainly been in the reporting where we try to follow the developments in the market and the demands from investors. We issue green bonds based on our lending to the water authorities and sustainable bonds based on our lending to the social housing. They combine social and green targets so therefore we amended the framework last year from ‘social’ to ‘sustainable’. Green bonds we issue in EUR, USD and SEK and in 2020, we also issued our first sustainable bond in USD after a lot of EUR deals. For 2021, we look to expand also in the AUD market, and probably also in GBP.

Frank Richter: It’s a fast-growing market, a very dynamic market, and we are quite happy that we have been a part of it from the beginning, in 2013. We will continue in the green space with at least one transaction annually. We have just recently been preparing an upcoming €500 million green bond for 2021, which is in the process of second party opinion. In fact, the discussion with the second party opinion provider is 50% of the way done, so we will continue this program in 2021. We started the social program in 2020 as well with a very successful 15-year transaction. This program will also be an integral part of our funding strategy going forward, so I expect that we will do at least a one billion Euro transaction in the social format. We may also look into other markets, such as Australia, where it’s not really possible to do this in the green format where our assets are more limited. These are the projects for 2021 – one green, one social in euros and social also available in other currencies.

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Anish Gupta: There is no denying that our institution has prioritised ESG in all aspects of its business model. OeKB is the export credit agency of Austria and its issuance carries the explicit guarantee of the Republic of Austria. Within the remit of its export financing scheme, the Republic of Austria has implemented and integrated its own ESG policies, for instance SDG goals, which also work as markers for the asset side, which can then be financed by the issuance of ESG bonds. OeKB issued its successful inaugural €500 million Sustainability Bond in 2019, and we intend to make the issuance of ESG bonds a part of our funding program going forward. In terms of ESG issuance in 2021, we will look to issue in a benchmark format which for us is around €500 million. We also plan to issue in smaller sizes, perhaps in other currencies, which could be targeted towards specific investor demand in certain regions.

Anna Finnskog: SEK issued its first green bond in 2015, a USD500mn 5 year bond. In 2020, we have issued green bonds in Swedish krona on a number of occasions. Total outstanding is fairly low right now, about SKR6 billion, but the plan is to increase the volume, not only in Swedish krona, but also in other currencies. SEK also plans to launch a new sustainability bond framework in 2021 that will be EU Taxonomy aligned. We think that the EU Taxonomy may be a driving force for green and sustainable investments and may therefore be a baseline for green bond issuance going forward. Looking ahead to 2021, we will continue to issue green bonds, not only in Swedish krona, but potentially also in EUR.

We think that the EU Taxonomy may be a driving force for green and sustainable investments and may therefore be a baseline for green bond issuance going forward. Looking ahead to 2021, we will continue to issue green bonds, not only in Swedish krona, but potentially also in EUR. ANNA FINNSKOG

Obviously no one could have predicted the events witnessed in the past year. Although we have had a number of more positive headlines including news around the vaccine and the determined US election result, we asked what the biggest concern for issuers was heading into 2021.

Anish Gupta: The concern that most issuers have would be the substantial increase in funding in 2021. Primarily a phenomenon for the EUR market but also relevant for the USD market, as issuers look to diversify their funding across currencies. I suppose the biggest challenge will be the fact that we will have to deal with the constant deal flow and manage within the issuance windows accordingly. As a relatively smaller issuer in the market, this is of particular relevance.

Frank Richter: The EU SURE program is something that could concern me, because it will be difficult to find the right windows for our conventional and regular bond program, having this very big issuer regularly in the market with large transactions. That’s something that will be challenging for us as well as for the banks working with us. The regular, traditional, smaller SSA issuers will have to find their windows between all the very large supply from this new issuer. Having said that, we have a really loyal investor base. They have known us for many, many years. We are reliable and we have a very good and deep relationship with them. So we can build on that.

The EU SURE program is something that could concern me, because it will be difficult to find the right windows for our conventional and regular bond program, having this very big issuer regularly in the market with large transactions. That’s something that will be challenging for us as well as for the banks working with us. FRANK RICHTER

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Sven Lautenschläger: My biggest concern is that the lack of personal interaction and reduced possibility to exchange on a direct basis will cause further extreme positions in every part of life, in private, in politics, in economics. The distance between people causes knock-on effects in how markets function in the future and how we can work together. Our business is so highly internationalized, we have probably one of the most globalised businesses, with customers on every continent. We have created an understanding for different cultures, for different behaviours, for different economic structures all around the globe - if we are unable to continue that dialogue on a direct basis, the negative impact in the long run could be quite significant.

Anna Finnskog: We don´t have any particular concerns, but we hope there will not be another period of financial turmoil due to COVID or that there will be imbalances in supply and demand in the SSA market.

68 | RBC CAPITAL MARKETS THE FUTURE OF ESG

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THE FUTURE OF ESG

The ESG debt market is expanding rapidly- driven by both COVID-19 financing and wider issuer and investor demands towards a more sustainable future. Green bonds have historically been the largest segment of the ESG market, but social, sustainability and sustainability-linked bonds have overtaken in terms of market share. In addition, transition bonds have emerged as a tool for issuers in carbon intensive, hard to abate sectors who are seeking to transform their business model in a way which effectively addresses climate-related risks and contributes to alignment with the goals of the Paris Agreement.

We brought together leaders from a selection of European financial institutions to share their perspectives on the sustainable debt market, including how they see ESG labels and structures evolving, pricing dynamics in their respective markets, and whether they expect the EU Taxonomy and Green Bond Standard will drive further activity in their markets – and beyond.

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PARTICIPANTS:

Sarah Thompson Angela Brusas Director, Sustainable Finance Director RBC Capital Markets The Nordic Investment Bank (NIB)

Mansoor Khan Karoliina Kajova Director, Debt Capital Markets Manager, Funding Municipality Finance Plc RBC Capital Markets

Jürgen Köstner Heike Reichelt Head of Investor Relations Head of Investor Relations and KfW Sustainable Finance World Bank (IBRD)

Jürgen Köstner Photo: KfW / Lena Gauß Vice President Head of Investor Relations

Jürgen Köstner (born 1969) joined KfW in 1996.Mansoor Since 2009, he hasKhan: been Thanks everyone for joining us today for the ESG Panel. By way of introduction, I am Mansoor responsible for KfW’s investor relations activities including KfW’s credit rating and disclosure. Before entering the Capital MarketsKhan, Department Director in 2007, Jürgen workedGovernment Finance at RBC Capital Markets. Over the years here at RBC, I have been intimately in various positions in KfW’s domestic business sector, where he was in charge of strategic new projects or private equity financings.involved in advising our clients on how to set up their respective Green Bond Programs and bringing them to the In 1996, Jürgen graduated in industrial engineeringmarket. and management I am from a Tmemberechnical of the ICMA Climate Transition Finance working group and also organize a global RBC University of Kaiserslautern, Germany, and Queen’s University, Canada. sustainable debt conference annually in Toronto. Some of the distinguished panelists here have been regular Jürgen has two daughters. participants at our annual conference and I am delighted to have them again here with us today. I would like to start our discussion today with Sarah, who is part of the Sustainable Finance Group at RBC Capital Markets. Prior to joining the Sustainable Finance Group, she spent several years on RBC’s Corporate Citizenship team overseeing enterprise-wide operational footprint reduction initiatives, producing ESG disclosure and working with business units on the development of sustainable financial products and services. She also partnered with RBC’s Corporate Treasury Group to support RBC’s inaugural Green Bond issue in April 2019.

Sarah, thanks for joining us today. Can you please provide an overview of RBC’s ESG profile and any recent performance that may be worth highlighting?

Sarah Thompson: Thanks Mansoor. RBC’s approach to sustainability is central to delivering on our purpose to help clients thrive and communities prosper. We are highly rated by third-party ESG research providers, largely due to our focus on key areas such as corporate governance, data privacy and security, diversity and inclusion, exceptional client experience, and environmental leadership. Furthermore, ESG performance improvement is factored into our CEO and Group Executive compensation. We are also recognized for our ESG leadership having been consistently named to the Down Jones Sustainability North America Index, FTSE4Good Index, Refinitiv Diversity & Inclusion Index, and Bloomberg Gender-Equality Index.

In 2019, we launched the RBC Climate Blueprint, our enterprise climate strategy. As part of our Blueprint, we announced a target to provide $100 billion in sustainable financing by 2025 to clients and projects that are contributing to the low-carbon, sustainable economy of the future. In addition to our sustainable financing target, we established an executive-led Climate Working Group to develop climate-related financial products and services. And we executed a power purchase agreement for a large solar project in Alberta as part of our commitment to maintaining net-zero emissions in our operations.

Most recently, we became the first Canadian bank to announce new policy guidelines for financing sensitive sectors and activities. As a result, RBC will not provide direct financing for resource projects in the Arctic National Wildlife

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Refuge in Alaska. We also disclosed policy restrictions related to coal mining and coal-fired power generation. This demonstration of our commitment to ESG principles was recognized as credit positive by Moody’s.

Finally, we are using our influence to grow the sustainable finance ecosystem. We take pride in our thought leadership, including our ESG Stratify equity research reports, Unlocking ESG webinar series for corporate clients, Navigating the Energy Transition webinar series, and our Greening the Financial System report which presents an overview of regulatory approaches to mitigate climate change risk and “green” the financial system. We are also active members of various industry associations and working groups, including the SASB Advisory Council, ICMA Climate Transition Finance Working Group, LSEG Sustainable Bond Market Advisory Group and the Canadian Transition Taxonomy Technical Committee.

Mansoor: RBC recently updated its Green Bond Framework to a Sustainable Bond Framework under which it can issue Green, Social, or Sustainability Bonds in the future. What was the key driver for that move? Can we expect RBC to issue under any of these other labels in the future?

Sarah Thompson: That’s correct. In 2020, we published the RBC Sustainable Bond Framework under which RBC can issue Green, Social or Sustainability bonds. We also published our first RBC Green Bond Report to provide details on the allocation of proceeds from our inaugural Green bond in April 2019 to a portfolio of eligible green assets. The RBC Sustainable Bond Framework is the evolution of the RBC Green Bond Framework, which was published in April 2019 alongside the issuance of our Green bond. The new Framework allows for the issuance of three types of bonds: Green, Social or Sustainability bonds. This is possible through the addition of eligible categories that define socially beneficial activities. We believe this approach will provide us with maximum flexibility for future issuance. It also allows us to demonstrate our support for the development of the sustainable debt market more broadly, and it aligns with RBC’s sustainability commitments across environmental and social factors.

Mansoor: On the underwriting side, RBC has led many issues in the GSS space over the years and has consistently ranked #1 in the Green Bond league tables in Canada since 2014. Can you provide some color around RBC’s underwriting capabilities across the globe?

Sarah Thompson: Our performance in the sustainable debt market builds on our longstanding support for the growth of the Green bond market. In Canada, RBC Capital Markets is the number one ranked dealer in underwriting Green bonds and maintains the largest market share of Canadian public sector Green bond deals. RBC is also the only bank to have led every inaugural crown, provincial, or municipal Green bond issue to date in CAD which in itself is an exceptional record. RBC Capital Markets is also active in the global Green bond market, leading transactions across multiple currencies, as well as in the US municipal finance market. Since 2014, RBC Capital Markets has hosted an annual Green Bond Conference in Toronto. In 2020, we hosted our seventh annual conference and expanded it to reflect the broader sustainable bond market.

GSS AND SUSTAINABILITY-LINKED BOND ISSUANCE IN THE LAST DECADE

560 530.0

480 Sustainability-linked Bond 400 Sustainability Bond 330.6 Social Bond 320 Green Bond 240 201.4 186.5 160 107.3 Bond Issuance (US$ bn) 80 55.1

GSS and Sustainability Linked 41.5 14.7 11.4 4.9 0 Pre-2012 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Bloomberg New Energy Finance. December 2020

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Mansoor: Thanks for the insights Sarah. Moving on to some of our other panellists here today. Could we start with each of you sharing a brief overview of your organization and your respective Green, Social, or Sustainability bond programs. How much have you issued and how have you seen your programs evolve over time?

Angela Brusas: The Nordic Investment Bank (NIB) is an International Financial Institution, located in Helsinki, Finland. The Bank was established by the five Nordic countries in 1975. In 2005, the three Baltic countries joined NIB on equal footing. Our mission is to finance projects that improve productivity and benefit the environment of the Nordic and Baltic countries. Our Sustainability and Mandate unit assesses all projects on mandate fulfilment before considering financing. NIB provides sustainable, long-term financing to customers in both the private and public sectors, on market terms, to complement commercial lending. In 2020, some 96% of outstanding loans were to projects in the member countries, and only 4% financed projects outside the member country region.

In 2011, the bank established the NIB Environmental Bond Framework, allowing issuance of environmental bonds and financing of projects that belong to one or more of the defined eligible project categories. The framework, which was last reviewed in 2018, is aligned with the Green Bond Principles and has a Dark Green Second Opinion from CICERO. From 2011-2020, we issued a total of EUR 4.9 billion in environmental bonds (NEBs). This included issuance of a EUR 500 million environmental bond in each of the last six years. In 2019, we issued the inaugural Nordic-Baltic Blue Bond in SEK. This was followed by a second blue bond issued in 2020, also in SEK. The blue bonds are issued under the same NEB framework as the environmental bonds, but the proceeds from these specific bonds finance projects only within water management and protection in the Nordic-Baltic region. In 2020, Environmental Finance presented us with the ‘Award for Innovation – Use of Proceeds’ for our Nordic-Baltic Blue Bond. Since 2011, NEB bonds have financed almost 100 eligible projects, and in 2021 NIB will celebrate its tenth anniversary of issuing NIB Environmental Bonds.

In March 2020, the Bank’s Nordic and Baltic owner countries called upon NIB to make additional loans available to member countries and sustainable businesses that are facing social and economic consequences due to the COVID-19 pandemic. A Response Bond Framework allowing for response bond issuances for selected loans was established. The framework lays out the principles for the issuance of NIB response bonds, including disclosure on the project selection process, use of proceeds, management of proceeds, and reporting.

During 2020 we issued two NIB response bonds, one in March and one in April: the first was a three-year EUR 1 billion bond and the second was a three-year SEK 4 billion bond. Year-to-date, an equal amount of Response loans have been disbursed to Estonia, Latvia and Lithuania.

Jürgen Köstner: At KfW, green financing is in our DNA, and something we have believed in for many, many decades. It is a crucial part of our promotional mandate. We regard green bonds as a key capital market product for the financial market’s contribution to achieving a climate-neutral world. They are an outstanding instrument for us to mainstream the principle of sustainability in the capital markets.

We have issued a total of Euro 31 billion since the inception of our green bond program in 2014. And we expect issuance of ‘Green Bonds – Made by KfW’ to increase to Euro 10 billion in 2021, in a variety of currencies. Our current green bond proceeds are linked to renewable energy projects and, to an even larger extent, to the construction of energy-efficient residential buildings in Germany.

Our goal is to support quality and liquidity in the green bond market segment. We primarily aim for large and liquid green bonds, developing the market in the same direction as the German Bund: building a meaningful green curve for global investors with liquid bonds. In 2020, KfW and Bund issuance volumes totaled around Euro 20 billion, forming the ‘green bond Bund family’. This articulates a clear, strong signal from Germany.

For those who are not yet familiar with KfW, we are the largest German government development bank and one of the largest sub-sovereign agency issuers in Europe. Under the direction of the Federal Finance Ministry and within a mandate set by law, we play a critical role in implementing economic policy in Germany. The most important factor from an investor’s perspective is that the German government explicitly guarantees all our bonds and notes. In a nutshell, if investors buy KfW bonds, they get top-rated triple-A German credit risk plus a yield pick-up versus the German sovereign.

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Karoliina Kajova: MuniFin is a Finnish local-government funding agency. It is 100-percent owned by the Finnish public sector – the municipalities, the Republic of Finland and Keva, a public sector pension fund. Our customers are Finnish municipalities, their majority-owned companies and non-profit housing companies. Finland’s welfare state is financed by MuniFin through our customer finance, and so we support access to essential services and infrastructure across the country.

We have been leading the way for sustainable products in Finland since 2016. MuniFin was the first Finnish green bond issuer in 2016, and since then we have issued five green bonds. This year, we expanded our product offering with the publication of our Social Bond Framework and, in September 2020, we became the first Finnish and also the first Nordic SSA social bond issuer. The first social bond was also tapped in November 2020. The current outstanding amount of green bonds and social bonds is EUR 2 billion equivalent and EUR 600 million, respectively.

MuniFin’s green bonds finance projects that promote the transition to low-carbon and climate resilient growth. We currently have projects in the following project categories: sustainable buildings, sustainable transportation, water and waste-water management, renewable energy and energy efficiency. On the social side, our projects promote equality, sense of community, wellbeing and vitality of regions. The current social finance portfolio includes projects from healthcare, social housing and education categories. As we feel promoting sustainable products is important, we offer a margin discount to our customers for both green and social finance.

Heike Reichelt: The World Bank (International Bank for Reconstruction and Development, IBRD) plays a fundamental role in supporting sustainable development in middle-income countries. The World Bank helps to create jobs, develop human capital, promote and protect global public goods, drive environmental sustainability, facilitate access to finance, and build social safety nets. IBRD operations, which span 59 countries, are aligned to help countries achieve the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity, as well as the Sustainable Development Goals (SDGs).

As a pioneering issuer of green and sustainable bonds, we have led transformative change in capital markets – by issuing the first labeled green bond in 2008, as a founding member and architect of the Green Bond Principles that are based on the model of our first green bond, in our role as an executive committee member of the Green Bond and Social Bond Principles, and through our partnerships with asset owners. We also play a role as an issuer taking a holistic approach through our sustainable development bonds.

In 2015, the World Bank began using the Sustainable Development Bond label to highlight its mandate, and, as interest in SDGs grew, focused communication around specific SDGs and development challenges. The World Bank takes a portfolio approach to issuing labeled Sustainable Development Bonds: bond proceeds contribute to the entire balance sheet and thus the entire mandate of the institution. In addition, through engagement and communication with investors, the World Bank raises awareness for specific development challenges and certain SDGs using World Bank projects as examples. While bond proceeds are not earmarked by sector or to specific projects, dedicated themes have allowed for bonds issued to raise awareness around topics as food loss and waste; gender equality, health and nutrition of women and children; sustainable cities; and water and oceans.

Since its first bond in 1947 IBRD has issued over US 1 trillion. Its issuance program has recently ranged from US 50-60 billion. Its last fiscal year ending June 30, 2020 was IBRD’s largest funding year with US 75 billion, including several record-breaking transactions, including the largest ever Sovereign, Supranational and Agency (SSA) bond in April 2020 – US 8 billion 5-year which raised awareness with investors about the World Bank’s efforts to respond to the immediate health response to the COVID-19 pandemic.

Mansoor: Any thoughts on other labelled bonds? Transition finance and Sustainability Linked Bonds have been a key topic of discussion in recent times. Could you share your thoughts on how you see these markets developing over the coming years?

Angela Brusas: NIB is a member of the Principles’ Executive Committee and actively takes part in the various working groups, including the Climate Transition Finance working group. The market has come to a realization that we need to also support hard-to-abate sectors in their transition towards achieving the Paris Agreement goals. NIB’s long-term

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focus on sustainable growth supports this thinking. We promote improvements to productivity and the environment, with economic growth, sustainability and social considerations as integral parts of its financing. The recent published Climate Transition Finance Handbook and related Q&As are good tools for market participants seeking guidance on how to utilise green bonds, sustainability bonds or sustainability-linked bonds towards the achievement of their climate transition strategy.

Another product that has gained ground is the sustainability-linked bond (SLB). In 2020, the Principles also published the Sustainability-Linked Bond Principles, as voluntary guidelines for issuing these bonds. A sustainability-linked bond does not focus on the definition of the use of proceeds like the green and social bonds, but represents a view of the issuers’ overall sustainability strategy and their future sustainability journey. Though the proceeds of sustainability-linked bonds are intended to be used for the issuer’s general purposes, the instrument is designed in a way that incentivises the issuer to achieve pre-defined sustainability objectives (KPIs and SPTs) within a defined timeline. Starting from January 2021, NIB will be one of the co-ordinators of the SLB working group within the Principles.

Jürgen Köstner: We see the green bond market as a long-term core element of our DCM refinancing and, accordingly, we are focused on the further development of this market segment – in particular on the issuance of large liquid bonds and on the further development of the ‘ESG’ topic.

We at KfW are strongly convinced that, in the medium term, investors will look at issuers holistically and not just at parts of the balance sheet. This is exactly what sustainability-linked bonds are doing: looking at the overall sustainability strategy of an issuer. We note the continuing very positive trend of sustainability gaining more and more importance on the capital market. We believe green and sustainable finance is more relevant than ever in a post pandemic situation – because only rebuilding the economy with sustainability in mind will lead to the achievement of the SDGs and the goals agreed under the Paris Climate Agreement in the long term.

Nevertheless, currently we have no plans to issue sustainability-linked bonds, social bonds or any other rainbow- colored bonds.

Karoliina Kajova: We ventured into the social bond space this year, after being an active green bond issuer for a few years, as we felt it was important to promote and highlight finance that addresses central social challenges in Finland – like social exclusion, inequalities and homelessness – as well as promotes wellbeing and our education system. We are excited that our social bond program has taken off so well. Currently, we feel our sustainable product offering is very balanced with green and social bonds, and we are not planning to broaden the labelled bonds scope for the time-being. The intention is to issue at least one new green and social bond each year.

When it comes to Transition bonds, one can see green and social bonds also as transition bonds, as issuers set targets to grow the share of green and social finance. Sustainability-linked bonds are an interesting new asset class, especially for issuers in more carbon-intensive sectors who are looking to transition, but specific projects can’t be earmarked. KPI and target-setting can be challenging, but targets should be appropriate and ambitious. There are many positive aspects to issuing labelled bonds, including the increased dialogue internally between different units of an organization, as well as with investors. Also, the increased transparency is appreciated by investors.

Heike Reichelt: The COVID-19 pandemic has raised awareness in the capital markets, and elsewhere, for the need to address gaps in our societies, including protecting the poor and vulnerable, and highlighted how interconnected we are from a social perspective – our well-being depends on the well-being of others around the world. The current economic downturn caused by the pandemic is broader and deeper than previous recessions, and has hit the poor, and especially woman and children, the hardest. The World Bank notes that poverty is rising for the first time in more than 20 years: about 150 million more people globally will be pushed into extreme poverty by 2021. World Bank research further highlights that at the peak of school closures in April 2020, 1.6 billion children were out of school, with the concern that many may not return.

Additional attention to social and sustainable bonds has resulted, while many first-time social bond issuers have long been engaged in social and sustainable activities prior to the pandemic. We think the trend towards more sustainable investing is accelerating if only increased by the pandemic. The World Bank has been using the Sustainable

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Development Bond label for since 2015 and directs all of its activities to sustainable development. And in light of the COVID-19 pandemic IBRD is making available up to approximately US$50 billion directed at saving lives, protecting the poor and vulnerable, ensuring sustainable business growth, and rebuilding in better ways. This IBRD share contributes to the US$160 billion being made available across the World Bank Group for a sustainable response to the COVID-19 pandemic from March 2020 to June 2021.

There is keen interest from investors and issuers alike to understand what qualifies as a climate transition finance investment, what guidance exists to support decision-making, and what investment products may be used. The World Bank, as a member of the Executive Committee of the Green Bond, Social Bond, & Sustainability-Linked Bond Principles coordinated by ICMA, participated in the taskforce that developed the Climate Transition Finance Handbook. Having guidance on how capital markets can direct savings to investments that will help society move to a low carbon future was needed to elevate the importance of strategy, process, transparency and disclosure and to help create credibility around such issuance. As we advance on 2030 and 2050 milestones, there is both a sense of urgency and a growing appetite for action to support climate transition. We will likely see issuers coming to market with green, sustainability and sustainability-linked bonds that are part of issuers’ climate transition strategies. The handbook is an important tool that provides clear and sought-after guidance to support market development.

Mansoor: Pricing of labelled bonds remains a key discussion point between issuers and investors. Can you comment on the pricing dynamics in your respective markets? Also, can you share any insights on liquidity of these bonds compared to conventional bonds?

Angela Brusas: The suggested ‘greenium’ for green bonds has been fairly marginal through the years. At NIB, any such identified benefit in funding cost has been passed on to the projects financed. For certain, should we in the future see more quantified evidence of thematic bonds being less risk-averse than regular bonds, a bigger ‘premium’ would be justified. Our experience of green bond issuance is that most of the investors are so-called ‘buy and hold’ investors, indicating that we see limited flows of NIB environmental bonds in the secondary market.

Jürgen Köstner: Our view is that oversubscription in KfW’s green bonds in 2020 has resulted in a ‘greenium’ compared with conventional bonds, of approximately 1 basis point. We see strong investor demand for green bonds and limited supply. So, yes, we have benefited from this trend.

Regarding liquidity, we aim to keep ‘Green Bonds – Made by KfW’ at the same liquidity level as our conventional bonds. This should be possible as we have green bond lines of Euro 6 billion and Euro 4 billion outstanding. To meet this increased investor demand, and backed by the expected increase of the underlying green assets, we have increased our funding target for KfW green bonds by Euro 2 billion, to a sum of Euro 10 billion of new issuances in 2021.

Karoliina Kajova: We have noticed that we’ve been able to price both Green and Social bonds denominated in EUR tighter compared to conventional non-labelled bonds. This has been possible, as the demand for themed bonds is overwhelming. It seems that more and more investors seek transparency when it comes to the use of proceeds. Liquidity in these bonds can be scarcer as they are highly sought after and issuance sizes can be smaller compared to non-labelled bonds.

Mansoor: How do you expect the EU Taxonomy and Green Bond Standard will impact the Green Bond market in Europe or perhaps even other jurisdictions?

Angela Brusas: NIB has remained supportive and engaged in all sustainable finance market new initiatives, including the EU taxonomy and Green Bond Standard. We have actively participated in consultations by the EU Technical Expert Group on Sustainable Finance (TEG). The EU Green Bond Standards build on the key principles established by the Green Bond Principles and we generally feel that the latest version as put out by the TEG was balanced and in line with our ‘own’ taxonomy.

Recently, the Commission published the draft Delegated Acts on the technical screening criteria for environmental objectives climate mitigation and climate adaptation, allowing for comments for a short time of period. The delegated act is to a large extent based on previous recommendations of the TEG, but there are also some significant changes.

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Some of the suggested changes would require some clarification. For example, technical screening criteria for certain sectors (such as gas pipelines, biofuels, shipping and transport infrastructure), and how the changes support the sectoral transformation needed to achieve the net zero goal by 2050, which is in line with the Paris Agreement.

Further, the level of DNSH criteria for various sectors is not balanced (for some ‘greener’ activities, DHSH are extremely detailed and strict), undermining their application and usability. Also, the value chain thinking between eligible activities is missing in places. Some have also foreseen difficulties for non-European issuers or EU issuers intending to finance projects outside of the EU, if local environmental standards and/or regulations significantly diverge from those of the EU. NIB has been coordinating a joint response with feedback from the Principles to EU.

Jürgen Köstner: We at KfW welcome the EU Taxonomy Regulation because it enables the financial sector to use a uniform language on ‘environmentally sustainable’ financial products. At the same time, it also brings with it challenges, which include, above all, the manageability of the demanding and diverse criteria: all parties involved must overcome the necessary build-up of know-how and the challenges for their IT systems.

The link between EU Taxonomy and the green bond market is provided by the report for an EU Green Bond Standard presented by the TEG, and KfW was part of that. This report recommends the introduction of a voluntary standard, largely based on existing market practice.

In our view, the TEG proposals will create clarity and transparency, reduce reputational risks and contribute to the lasting integrity of the green bond market. Whether and when KfW will issue green bonds under the EU Green Bond Standard depends on the final design of the EU Green Bond Standard which is expected to be announced in the course of next year.

Heike Reichelt: The EU taxonomy and Green Bond Standard will have many issuers evaluating their programs to assess alignment or compliance with the taxonomy and standard and taking steps to qualify for the label. Issuers will need to meet mandatory external review requirements to qualify for the standard so there may be a lag in those that initially qualify. European investors will also be evaluating their portfolios for what is in line with EU green bond standard especially as the EU’s disclosure requirements around sustainable investing come into effect in March 2021. We can expect to see more dialogue between issuers and investors and more work on the issuer side to show alignment or assess the cost and time required to align with the standard.

Mansoor: Well, this has been an extremely informative session and I would really like to thank each and every one of you for sharing your valuable insights on the range of topics we were able to discuss today. With that, I would like to conclude our session and wish you all a very happy new year.

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CANADIAN MAPLE MARKET

The Canadian SSA Maple market had another strong year in 2020, with C$7.0 billion of new issue supply. Following a decade of very limited issuance in this market, activity picked up in the Canadian SSA Maple market in recent years, and has averaged ~C$5-7 billion annually since 2018. Transactions have been driven by the attractive pricing dynamics for issuers whilst allowing investors the opportunity to buy highly rated credits at a pick up to similarly rated domestic names. The SSA Maple market continues to successfully offer issuers both currency and investor diversification, with broad investor support allowing for offerings as large as C$1.5 billion. ESG issuance has been a significant theme in the Maple market with over 70% of SSA Maple supply in 2020 having a Green or Sustainable label. ESG labelled issues have been embraced by the Canadian investor base, and in many instances has led to more attractive cost of funds for issuers.

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PARTICIPANTS:

Jigme Shingsar Zauresh Kezheneva Managing Director DCM Associate Funding Officer RBC Capital Markets International Finance Corp (IFC)

Alex Caridia Laura Fan Head of Government Finance Head of Funding RBC Capital Markets Inter-American Development Bank (IDB)

Aldo Romani Andy Kochar Head of Sustainability Funding Vice-President, Portfolio Manager European Investment Bank (EIB) & Head of Global Credit AGF Investments (AGF)

Piet Jurging Alain Hage Head of USD and CAD funding Director Liquid Asset Portfolio KFW RBC Corporate Treasury

Andrea Dore Head of Funding World Bank (IBRD)

FUNDING REQUIREMENTS

Jigme Shingsar: Why don’t we start with our issuers telling us a bit about their institutions and their funding needs? How has your funding program done over the past year, how does the Canadian market fit into the funding program, and lastly if applicable, how was your experience issuing in Canada this year?

Andrea Dore: The World Bank funding needs increased significantly this year compared to previous years. During our last fiscal year (July to June), the World Bank (IBRD) raised a historical US$75 billion and IDA raised US$5 billion. These increased funding requirements have been driven largely by the World Bank Group’s response to the health, social and economic impacts of COVID-19.

In the case of IDA, a newcomer to the capital markets, we have had to frontload IDA’s funding from an initial estimate of US$3 billion, to US$10 billion this fiscal year – a funding volume that was expected three to five years from now. The funding volumes for IBRD and IDA are expected to remain at elevated levels in the short term as the World Bank (IBRD) and IDA continue to respond to the growing needs of their member countries during this global pandemic and beyond.

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The funding volumes for IBRD and IDA are expected to remain at elevated levels in the short term as the World Bank (IBRD) and IDA continue to respond to the growing needs of their member countries during this global pandemic and beyond. ANDREA DORE

Aldo Romani: The EIB has issued roughly €70 billion EUR equivalent this year, versus €50 billion last year and €60 billion in 2018. Part of the €70 billion is on prefunding needs, the general borrowing authorization for the year was at €65 billion, but given the high levels of disbursements this year and expected for next year, the Board of Directors extended the range of our issuances. It is remarkable to underline the doubling, or more than doubling, of the issuance we performed in sustainability. Last year we issued roughly €4.3 billion and this year we issued ~€10.5 billion, partly due to the knock on effect that the EU Taxonomy regulation force has generated this year.

Laura Fan: For this year, as a result of the increased lending to mitigate the negative impact of Covid-19 in Latin America and the Caribbean, we had our largest borrowing program ever. We have borrowed US$26.8 billion (above the projected US$26 billion program) with 83% of that funding denominated in USD. Canada has played a part as it was the third largest currency of issuance, moving up one spot from last year’s 4th place ranking. We have issued CA$1.5 billion CAD in 2020 so far, with two 5-year transactions and a 7-year transaction. Canada was about 4% of this year’s funding program.

Zauresh Kezheneva: Our medium and long-term funding program for this year remains relatively flat to last year at approximately US$12 to US$14 billion, with an additional short-term discount note program for up to US$5 billion outstanding on any given day. Since our fiscal year runs from July to June, we are now through the first half of the program and early next calendar year, we will reevaluate our funding needs. From there, we will see if the size of our funding program is subject to change. Regarding trends for this year, we’ve seen heavier issuance in the public markets and heavier weight of the G10 currencies, with the Canadian dollar being one of them. We continue to maintain our presence in the Canadian market, where we have been since 2018 and have done a 5-year trade for CA$500 million this year. Proportionately, CAD issuance has been around 5-6% of our funding volume overall.

Piet Jurging: We have not issued that much in Canadian dollars in the recent years. Our funding target is at €65 billion, and with the €2 billion green bond transaction, we have completed our funding program now. Everything else would be considered as pre-funding, but no specific plans. Our target has been reduced by €10 billion, even though we became responsible for various loan facilities, providing liquidity for companies in Germany that struggled due to the pandemic. So commitments were increased by roughly €50 billion for 2020, thus it sounds contradictory that we reduced the funding target, but the government allowed us to draw funds form the so called Economic Stabilization Fund, which is up to a maximum of €100 billion. This year we made use of roughly €40 billion, and we are even allowed to make use of it in the next year depending on further drawdowns within COVID-19 financial aid programs; so overall, proving the strong link between Germany and KFW overall.

We have not issued in 2020 with respect to Canadian dollars, however our last issuance in 2019 was very successful. We would like to repeat the success next year, and I am fairly certain this will be in green form.

…our last (Canadian dollar) issuance in 2019 was very successful. We would like to repeat the success next year, and I am fairly certain this will be in green form. PIET JURGING

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GROWING INTERNATIONAL DEMAND FOR CANADA

Jigme Shingsar: We have seen continued growth in the Canadian dollar market, SSAs have been more active with larger volumes raised. For investors, how do you view SSAs in the Canadian dollar context and their relative value?

Andy Kochar: To start around relative value, we have been invested in the SSA space in Canada for close to 20 years across a variety of our mandates. Obviously, there have been a lot of changes since then, but the reference points for us have been the typical provinces and Canada Mortgage Bonds (CMB) that have been used by investors over many years as reference points for valuations. But the one change that has been the most significant in the last few years is that until very recently, the SSAs had just left the market, you didn’t see as many issuers come to the market, so investors such as ourselves had to resort to CMBs and provinces because there just wasn’t enough pickup.

Investors integrating ESG in their portfolios has been a big reason for demand in Canada. The pandemic has made the need to fund a bigger program much more relevant. Three or four years ago, we would always ask issuers what it would take for them to grow their program in Canada, because we care about Canadian-dollar-denominated SSAs. We do not tend to go for USD SSAs because hedge costs are very expensive, and frankly the FX hedge costs are also one of the main reasons issuers do not want to issue in Canada. The equation has changed as programs have grown so much and issuers needed to diversify their funding. Hedging costs have come down significantly as interest rate differentials have normalized. They might be paying up a bit, but we welcome this willingness for issuers to return to Canada to grow their program as they diversify their funding needs.

Lastly, the programs are now explicitly linked to specific sustainability objectives, something which is very important for our portfolios we care about. In particular, the value proposition that is in an SSA paper and the values aspect that these programs bring with it. We get a lot of questions on the equity and fixed income side on how the portfolio is resilient to the uncertainties. This is an ongoing theme because it is possible that events such as the pandemic or the likes of it will come up in the future, and it is important to determine how the portfolio will be ready for these uncertainties. Thus I think SSA issuers can help us build a resilient portfolio that aims to make a positive impact while delivering alpha at the same time.

Jigme Shingsar: Thanks Andy, and just as a follow-on to that, you talked about CMBs and Ontario as domestic reference points, and I think we’ve been successful in moving the focus away from the Ontario part to more of the CMB relative value. As a portfolio that is very focused on CAD, how much do you look at where SSAs are trading at in other markets in terms of reference points? For example, does a USD reference point make a big difference to investors such as yourself?

Andy Kochar: We have a couple of large global mandates that invest in foreign currencies (EM & DM) for SSAs, and for those we do engage in active FX exposure and thus it matters where the SSAs are trading in those currencies vs CAD. However, the majority of SSA exposure in AGF is in CAD. As much as we do care about reference points in other currencies, at the end of the day what matters for us most is CAD because we are hedging the exposure in these mandates and that is where we welcome the issuers when they look to issue in CAD.

Piet Jurging: If I may, Andy you mentioned relative value vs CMBS, what kind of pickup are you roughly looking for?

Andy Kochar: Well it’s kind of all over the place. For the longest time, people thought Ontario has passed that mark. It varies. For CMBs where they have come to the market, in general, we think it has a reasonable value. We believe the SSA market issuance has picked up tremendously and investors are asking less questions about the illiquidity relative to CMBs. In our view, we believe the value is fair.

Alex Caridia: To expand on that, this year we have seen issuances vs CMBs somewhere in the high digit ranges which is slightly higher than last year’s low to mid-single digits, so maybe that gives you an idea for where most of the transactions seem to be going.

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ANNUAL MAPLE ISSUANCE

EIB KEXIM IADB IBRD IFC KFW ADB 8.0 7,200 6,980 7.0 6.0 5,400 5.0 4,600 4.0 3.0 2,700

Issuance C$Bn 2.0 1,000 1,000 800 1.0 0.0 2013 2014 2015 2016 2017 2018 2019 2020

Source: RBC Capital Markets

Jigme Shingsar: Alain, any thoughts on how you look at relative value since you run a substantial USD portfolio as well?

Alain Hage: We have USD, EUR and Sterling presence as well as CAD. From that standpoint we don’t only look at where SSAs trade in Canada relative to CMBs, but also relative to how they trade in Sterling, EUR and USD. We often swap them back to various currencies, whether that is back to CAD or USD, using the underlying funding to buy SSAs in those specific currencies. Overall, we look at it globally, but we also try to support the Canadian market as much as we can. In terms of our SSA book, we would like to see consistency from the issuers to build enough liquidity in the secondary market because, when comparing CMBs and SSAs, there is quite a big difference in terms of liquidity. When the spread between the two tightens too much, it makes investors slightly more hesitant. The question becomes: do we want to buy SSAs in CAD or buy SSAs in EUR or USD? There is significantly better secondary market and repo liquidity in EUR or USD. Whereas in Canada, it is a bit of a hit and miss. Many, but not all, dealers nowadays are experiencing increasing difficulty holding inventory and are acting more as agents instead of true market makers. This is due to balance sheet constraints and their reduced tolerance for risk.

We would like to see consistency from the issuers to build enough liquidity in the secondary market. ALAIN HAGE

Andy Kochar: I agree with Alain’s views around liquidity around SSA, as that has been a debate in Canada for 20 years. We initially used to look at it vs Ontario, and then it moved to CMBs. The goalposts keep moving around depending on which dealer you talk to. From our perspective, as a CAD SSA investor, the part of our portfolio that invests in SSA paper is long-term core capital. These bonds and issues come with an objective that is very valuable to us and for that we want to pay up, we understand the liquidity aspect of it due to the redemptions and contributions. Dealers do have a hard time trading CAD paper, but I want to note that for a lot of CAD investors looking at CAD SSAs, liquidity matters but we are not trading this on a day-to-day basis. Since this is long-term part of our portfolio, we have to ask ourselves if we want to own these SSAs with these objectives or do we want to look at CMBs which are backed by the Canadian government and is high quality paper? However, we can also make a good case for SSA bonds to be just as good if not better quality.

Alex Caridia: I think that is a key point and something we see and talk about a lot here in terms of liquidity vs CMBs. Sometimes we trade as much CMBs in two weeks as we trade on our entire SSA book over the course of a whole year. To a certain extent that’s an aspect of our outstanding as there are only around CA$23 billion in the CAD SSA sector vs. around CA$256 billion in CMBs outstanding. The key point to investors is to diversify, because obviously a lot of

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investors are heavily invested in CMBs and provincials, whereas they do not get the opportunity to buy SSA maple credits often.

Jigme Shingsar: Andy you have referenced this a couple times but going back to Alain, you’ve heard Andy’s comments on ESG, do you feel that the ESG component many of these issues have brought (whether from the type of issuer or format of the bond), is additive to the value proposition when you are on the fence in terms of value vs CMBs?

Alain Hage: We do not have a specific ESG mandate, but we have an enterprise wide philosophy on ESG. A lot of the ESG bond purchases are against the various programs RBC has that are ESG-related. From a philosophical standpoint, it is important for us to be involved in ESG, we also don’t want to pay through relative value levels just to say we buy ESG bonds. So as long as the value is fair, we would be show preferential treatment as we are trying to grow the portfolio, but you don’t want to give up too much value chasing bonds that can sometimes have slightly less liquidity. Overall, SSAs are a big part of our portfolio and we look at our holdings cumulatively, across a broad spectrum of currencies.

Jigme Shingsar: So Alex, do you think there is an ESG component that gets investors more likely to participate in an issue?

Alex Caridia: Yes, I think there is a growing pool of ESG money which is very focused on the topic. At the margin perhaps even if investors do not want to give up on the price as Alain mentioned, they feel there will be better performance on the secondary market and we see that not just in SSA Maple but also in the provincial space, where green issues tend to trade 2-5bps through the non-green curve. So there is an expectation of performance, but on top of that there is a growing number of investors putting in green specific mandates, so it is certainly a factor. When we price our issues, we add some sort of “greenium” to our pricing, not significant but maybe around 1bps or so.

Jigme Shingsar: We will focus on this later on, but before we go back to the issuers, a question for our investors. We talk about liquidity and that can mean a lot of different things in terms of frequency, issue size, overall commitment to the CAD market. As an investor, how important is it that issuers maintain some sort of regularity in the CAD market? And by that, what would you consider a good amount? I wanted to ask Andy as he has a very CAD-focused portfolio here.

Andy Kochar: Absolutely, back in 2004-2005, we had a big wave of SSA issuers come to the CAD market for the first time and RBC was instrumental in creating a very active SSA market in CAD. A lot of issuers came to Canada and we participated in almost all of the deals. The value proposition was very different at that time, and sustainability was not a big proposition back then even though these bonds were essentially sustainable bonds in our mind. The financial crisis of 2008 resulted in the disruption of the swap market resulting in issuers leaving the market. Virtually none of them came back for the longest time and many are still not back in the market. The EU sovereign crisis of 2011 also did not help.

Maybe it’s the pandemic or the situation evolving now, or maybe where the swaps are today, it would be very nice to have a good number of European and other foreign SSA issuers to stay invested and to issue several transactions a year in Canada, so that we have the opportunity to certain value analysis in different points of the curve. It would not be ideal to see issuers come to the market and do not come back for the next few years, while the tenor keeps on shrinking. Like I mentioned earlier, this is long term capital for us and we want to be invested for the very long term, so it would be nice to have frequent issuers, more than one, on an ongoing basis.

…this is long term capital for us and we want to be invested for the very long term, so it would be nice to have frequent issuers, more than one, on an ongoing basis. ANDY KOCHAR

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Jigme Shingsar: Do any of the issuers want to respond to that, when you lay out your financing plans do you have some general sense of targets for each market?

Andrea Dore: Thanks Andy for your comments because it is extremely helpful for us as an issuer to understand how investors perceive issuer’s behavior in their market. The World Bank (IBRD) is committed to the CAD market and we have been a consistent CAD issuer for several years. The World Bank has taken a strategic, long-term approach to the CAD market. Last fiscal year, the World Bank raised approximately CA$5 billion in the benchmark bond market, making CAD one of the top four currencies of issuance for the World Bank. The World Bank intends to continue to be an active player in the CAD benchmark market, though funding can be constrained by the cross-currency swap and the need to swap the CAD proceeds to USD for ALM purposes given that the World Bank’s balance sheet is denominated in USD.

The World Bank (IBRD) is committed to the CAD market and we have been a consistent CAD issuer for several years. The World Bank has taken a strategic, long-term approach to the CAD market. ANDREA DORE

Jigme Shingsar: Piet, KfW pioneered the term ‘semi-strategic’ for certain markets. Would you consider CAD ‘semi-strategic’ from your standpoint in terms of the various pillars at KFW? How motivated would you be to look at CAD in the future?

Piet Jurging: Each year, it is an objective for KFW to issue in the CAD market. However, this year the economics have not been that attractive, at least for Euro-based funders. We are mainly looking at the CAD/ or USD/Euro basis swap, and at times this did not work out. We always tried to show a decent pickup of CMBs to address this liquidity issue, so this combined makes it sometimes slightly difficult and, unfortunately, we have to come close to our Euro levels, and we have not been able to reach those levels in 2020. In case there are opportunities to issue in CAD, our friendly peers usually react quite quickly as well.

Aldo Romani: The points made by Piet are very relevant and my feeling in accessing the CAD market is that it is a mix of dexterity maneuvering around competing supply and also internal maneuvering because we very often have the case that we are about to issue USD global benchmark and we do need to wait because there might be overlap in terms of distribution.

I believe going forward it would be extremely important to be recognized as serious, in terms of commitment, for example to those items such as sustainability that are of an increasing profile. You are able to access the markets rapidly if you have a fertile ground that you have cultivated over time, in which we are recognized as a credible counterparty. So we are definitely thinking on the sustainability funding side to monitor the Canadian market with a lot of attention, since this is a market thanks to the initiative of Canada, in terms of the contribution to sustainable financing in the field of taxonomy, is indeed in the process of organizing a framework within which certain features of our issuance will be better appreciated going forward.

With regards to the commitment, we have a domestic issuance program in place, which testifies to the willingness of EIB to issue in this market, not only to issue but really to develop an ongoing relationship with local investors beyond the banking community which has already supported us thus far. We know there are a lot of potential new investors that we could access on this basis.

Laura Fan: We have become a more consistent issuer in Canada over the past several years. In 2019, CAD ranked fourth in terms of issuance currencies and it ranked third for 2020. We strive to issue a new line or tap an outstanding bond at least once a year or within a two-year time period, subject to market conditions. So far, over the past several years, we have been very successful in issuing at least once a year.

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Per our charter we are not allowed to take any currency risk. We give our borrowers a choice of the currency they want their loan denominated in, as long as we can source it from the capital markets, but typically our borrowers choose USD. Therefore, when we look at the CAD markets, we need to swap it back into USD. We would typically compare the CAD with a direct issuance in the USD market. In part, liquidity can imply the size of the transaction, with the larger the size, the better the liquidity.

We have seen the growth in the investor base and interest from investors internationally. Domestic investors still account for more than 50% of investor distribution, but this year we have seen a pickup in the Asia-Pacific and Europe regions. LAURA FAN

Another aspect is the breadth and depth of the investor base. When we issued a 5-year in 2019 compared to the recent 5-year, there was a more than doubling of participating investors. Of course, it is not exactly comparing apples to apples, because last year we only issued a US$600 million 5-year whereas for this year we issued a total of US$1 billion (initial tranche and subsequent tap). [But] we have seen the growth in the investor base and interest from investors internationally. Domestic investors still account for >50% of investor distribution, but this year we have seen a pickup in the Asia-Pacific and Europe regions.

Part of that could be attributed to the growing interest in sustainable development bonds, as all of our issuances this and last year in Canada have been in sustainable development bond format, so perhaps this is what is increasing international interest for CAD. I do think that a larger investor base will help contribute to liquidity. For example, a bank is more likely to provide a competitive bid for a seller if they can resell the bonds to another investor. A larger, diversified investor base should provide better opportunities to facilitate that process.

Jigme Shingsar: IFC has a slightly smaller funding program and arguably, you could issue as much as you want in USD, but you still chose to come to the CAD market. Why do you consider that important?

Zauresh Kezheneva: I agree with all my colleagues about the importance of the swap markets – hedging opportunities are one of the primary considerations for timing of issuances. With the current program of US$12-14 billion we were able to issue in the CAD market between CA%500 and CA%750 million in different years, and our target is to continue growing our investor base in this market. If we jump from 2020 to a distant future where we do not have to wear masks, like 5-7 years from now, with the capital increase for IFC, we would expect to see the growth of our business portfolio and a respective increase in our funding needs. So, in the long-term perspective, we could anticipate the sizes offered in various markets, including the Canadian market, to grow.

With the current program of US$12-14 billion we were able to issue in the CAD market between CA$500 and CA$750 million in different years, and our target is to continue growing our investor base in this market. ZAURESH KEZHENEVA

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Jigme Shingsar: That’s great, thanks Zauresh. What’s the outlook in terms of duration and the curve?

Andrea Dore: One of our goals this year is to continue to extend the duration of the Word Bank’s funding to reduce potential refinancing risk. Recently, we successfully executed several very large-sized, long-dated bonds across different currencies including a 30-year, €2 billion benchmark bond. We also issued our first 10-year CAD benchmark bond last year, albeit a small size, but we hope to increase liquidity in that 10-year CAD line over time. The CAD market has been a great source of duration for the World Bank in the past. In fact, one of the longest maturity bonds issued in the history of the World Bank was done in CAD – a 99-year bond issued in 1994.

Andy Kochar: We would love to go out the curve with respect to the issuers. For the most part, Canadian SSA issuances have been 5-year and under, because it matches CMBs and it has been easier to sell. As the goals linked to these bonds are long-term goals, in order to demonstrate that to our investors, there should be a tenor that matches those goals. To make that point, it would either be great to have 10s and/or longs come to the market as well.

Alex Caridia: As you know one of the things we see in Canada, outside of the SSA space, is extremely long credit curve. Canada is unusual in that sense, with public sector spread product being issued all the way out to 100yrs. I think that certainly should provide some opportunity to look further down the curve if there is relative value in the space. The challenge in the long-end will be to provide a hedge for some of those issuers. If we can make the hedge work, I believe a large number of investors in Canada will look further down the curve and that could provide an opportunity for SSA Maples going forward.

On a relative basis CAD and USD are high yielding currencies vs Europe and the UK now, so from that perspective we have seen huge uptick in demand out of Asia, Japan specifically and then some of the other regions as well. ALEX CARIDIA

Alain Hage: From a bank treasury standpoint, the maximum tenor that we invest in is 10-years and that is fairly rare. There is value to have various points on the curve for an issuer. We do look at the 7-year part of the curve because at times, there is relative value. As we asset swap most of our bond purchases, the 7 to 10-year curve is normally not as appealing. We do find that when issuance occurs in the 10-year sector and old bonds roll down the curve, certain investors will sell their current holdings to roll into the new issuance. This can create some better value in the older issuances. There are other investors who would certainly prefer to have longer tenors. It’s also useful to have various points on the curve in order to better analyze SSAs, even if it’s not from one specific issuer, as high-quality SSA names track each other pretty closely. If there are enough issuers and issuance increases across the curve, and as Laura mentioned, the pool of investors grows, all these factors will help increase liquidity in the SSA space in Canada.

Andy Kochar: We are seeing the demand for issuance pickup whether it is on the back of the green deal and other parts of the world that are going to be stepping up their programs. For the issuers, how do you think the supply of tenors might evolve in the coming years as these programs become larger?

Laura Fan: Depending on where interest rates are headed, I can definitely see even in other markets, for the 7-year to become the new 5-year as investors seek the longer part of the curve to achieve incremental yield. The other choice is for investors to go lower down the credit rating curve to achieve higher yields. So, depending on where the interest rate environment could be going forward, I would say that there could be more longer-dated issuance. IDB has been extremely good in terms of maintaining a certain duration, as we have been able to issue 5- and 7-years in CAD. We typically do not have specific interest for very long maturities, e.g., over 10 years, but if there is interest from investors for such maturities then definitely that is something we could consider. To minimize refinancing risk, one of our policies is that at any given point in time, maturing debt (on a 12-month rolling period) cannot exceed 25% of outstanding debt.

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Jigme Shingsar: Any other issuers want to comment on duration? Generally speaking, I think the USD market has historically been weighted more towards 5-years and shorter, but this year we have seen more issuance further out the curve, probably a more active 10-year market then we’ve had in quite a while. And the EUR market continues to creep further out the curve. With increased funding needs, is duration becoming more important to any of your programs?

Piet Jurging: Our asset side has been quite stable, so due to that we do not have to prolong our liability side. We are well aware of the trend that investors are looking for pickup in yields, so perhaps in Euros they want to go up to 30-years and the EU, the new big borrower, will offer lots of supply in Euros in longer-duration. For us in Euro, it would definitely be a theme to issue a bit more in 15 years and even 20 years and in USD it is possible that we look for 10-years and maybe even 7-years. I believe next year there will be more opportunities in USD to go longer.

Zauresh Kezheneva: On our side, we are comfortable with duration close to 5-years, which we have been targeting over the last few years for our borrowing program. However, we often implement the strategy of bar-belling across different markets, so you could see us being quite long in one market or the other if we see relative value there. On the other hand, as some investors are looking for shorter exposure in emerging market currencies, we are happy to tailor to this demand too.

Jigme Shingsar: We have talked a lot about liquidity and CAD market growth and it definitely feels like there is more global interest in CAD this year given low rate environments generally. Alex, any comments in terms of investor flow in CAD, not necessarily specific to SSAs, but in the government or public sector?

Alex Caridia: I think that’s absolutely right and over the last two years, we have seen an increasing number of international investors focusing on Canadian dollars. On a relative basis, CAD and USD are high yielding currencies vs Europe and the UK now, so from that perspective, we have seen huge uptick in demand out of Asia, Japan specifically and then some of the other regions as well. We have also seen some of the European investors become more involved, they’ve become involved on two sides, one being buying Canadian credits in their respective home currencies because they yield more, so some of the Canadian provinces at the long-end of the Euro market, and more pertinent for this discussion, also just increasing the size of the overall CAD holdings, be that in terms of yield considerations or hedged back to Yen or other currencies, investors see the CAD very attractive. Particularly in the provincial and CMB space, we have seen a huge uptick in demand, we’ve also seen that feed through to some of the SSA issues. Probably not at the scale as what we’ve seen with provincial’s and CMBs, but that’s partly also driven by the fact that there is some overlap to the currencies here, as investors will buy all of the SSAs that issue in Canada in other currencies, so they’ll be active participants in USD and Euros and the like.

I think it’s fair to say international investors have become much more active and that’s really helpful from a liquidity perspective because those investors tend to have slightly different considerations to the domestic investor base which are very focused on CMBs as we’ve just talked about. When you look overseas and you have Japanese investors or other regions in Asia looking at outright yields, that gives us an outlet that we might not have otherwise have in Canada and that has manifested to lower bid/ask spreads. Looking at bid/ask spreads over the last couple of years they’ve come in quite a bit and we’ve moved from fairly high bid/ask spreads three years ago in the 4-5 bps region to now 2 bps or so, I think that development with international investors has been really helpful and hopefully we see more of that going forward.

Jigme Shingsar: I would assume that increased global interest in Canadian dollars leads to an expanded market and therefore hopefully increasing liquidity. Andy, as someone who is very focused on the domestic, is that something you would necessarily agree with? And the flip side of having offshore interest in CAD is that it creates large flows in both directions in and out of this market, how do you view that topic?

Andy Kochar: I think that comes down to the dealers facilitating flows in a more systematic way, a comment came earlier that it is more of an agency market for a Canadian dollar investor. It’s great to see more investors playing in the domestic currency, definitely creates more liquidity and hopefully we can capture that liquidity through the right channels and the dealers are facilitating those flows in the proper way. It is welcome from our side. If that is a consideration for issuers to grow the Canadian program, that’s great for us.

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Jigme Shingsar: Alain do you think more offshore interest in CAD generally would enhance some of the liquidity considerations you factor into your decisions?

Alain Hage: It can hurt or help but as I said earlier, it’s very dealer-specific. In terms of getting deals and flows overnight, the market does get slightly one-sided. Even though there is demand from foreign investors, at times it can cause a bit of an unbalance which can create opportunities for others from a relative value basis. Generally speaking, as more investors enter the market, the more it will be beneficial for spreads. For us, we would rather see more participants in the Canadian market as it will eventually lead to a more balanced market and create more liquidity.

Andy Kochar: Different investors have different measures of relative value, as we know. If you are a foreign investor coming to Canada and you have a certain type of mandate, you would look at relative value a certain way compared to if you are domestic investor such as ourselves, you would look at relative value a different way.

When investors of different thresholds of relative value are brought together on a certain market and deal, investors start questioning some of the price action happening in that market. For example: for the longest time people questioned why would I ever pay through a green Ontario bond versus a non-green bond? And look where we are today. That market took many years to evolve to where we are today.

We looked at SSAs back of Ontario’s, and now we look at them on back of CMBs – so that market has evolved as well. As the investor base broadens out and foreign investors come to the Canadian market, there will be a certain level of appreciation from domestic investors to reconsider how they look at relative value, because although the way they were looking at it is not wrong, the bigger players out there might have different view on relative value and that forces the domestic investors to reconsider what determines value. Bottom line is that the more players there are, the more this tit-for-tat discussion between what is true relative value for an issuer goes on.

Jigme Shingsar: We’ve talked about how investors look at things, and I know a lot of issuers on this call spend a lot of time on investor relations and investor marketing globally including Canada. Laura, you alluded briefly to the distribution to your Canadian dollar transactions, can you expand a little more on that – have you seen any evolution there? Do you see the global investor base expanding as well for Canada?

Laura Fan: In the past, when we were issuing Canadian dollars, it would have primarily targeted the domestic investor base. Over the past couple of years, even though the domestic distribution is still >50%, that number has trended slightly lower. For example, in 2019, domestic distribution was around 57%, but in 2020 so far, it’s 52%. We have seen growing interest from Asia-Pacific, with strong interest from Japan for ESG bonds (since our CAD issuance has been in Sustainable Development Bond format) as well as yield and foreign exchange views. We have also seen some interest from Europe.

When you take a look at investor type distribution, we have seen more participation from bank treasuries as well as the insurance and pension sector. If you have more investors involved in the Canadian dollar market, eventually what you may see is that you will also have more active international bank participation. If the market is very Canadian-centric, you have a few large domestic Canadian players and now with the international dimension, what you may potentially see is more international banks coming in because they view it as a growing business.

For example, in Australia before, there used to be a small group of players but as the market grew there was an influx of international banks that became more active, which is beneficial for both investors and issuers, but especially for investors because now there are more banks potentially providing pricing when you are looking to buy or sell.

Jigme Shingsar: Andrea you’ve issued two early large benchmarks in Canadian dollars fairly recently, so we’ve seen growth in terms of size and frequency and I’m sure that reflects an evolution of the investor base, any comment on that?

Andrea Dore: Yes, we are seeing growing international investor participation in the World Bank’s CAD benchmark bonds. The total number of investors (international and domestic) we see in our CAD benchmark bonds has grown significantly over the past few years as is evident in the size of several of our CAD trades of CA$1 billion plus. In addition to the immense growth in real money accounts, we’ve seen increased investor participation from key regions like Asia and Europe.

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In the longer maturity CAD benchmark bonds that we executed – 7- to 10-years – most of the demand comes from domestic investors while for the shorter maturities – 5 years and under – we observed an almost even split between international and domestic investors. The increased demand from international investors has allowed the World Bank to establish more liquid lines and diversify further its investor base. The increased international demand for CAD SSA products has also helped create more price tension.

Jigme Shingsar: Any other comments in terms of global interest in CAD and or domestic investor penetration?

Aldo Romani: Our experience this year is that 50% or slightly above of our issue in sustainability format was placed in Canada with Canadian investors and maybe 30-35% was here. For us, the diversification is a really present one as we have this kind of contribution, and I must add once again, 70% of distribution was with banks, so clearly there will be value for us in distributing further to different types of investors.

But I agree that in this, like in other currencies, it’s extremely important to react to arbitrage-driven demand by certain pools of relevant investors and, once again, the capacity to access this market in a dexterous way depends on the ongoing relationships that are currently developing in this field, both in terms of constituents of investors and banks.

For example, we have experienced in the last few months that there is an increasing role of specifically Canadian banks in other currencies within sustainability format, which is probably establishing those platforms for more corporations and more conducive intermediation in Canada. So this is just a qualification based on our own experience.

Zauresh Kezheneva: I would just add that we observed the same trends, we see Asian and European investors on the rise in Canadian issuances, accounting for approximately 40-50% of the books. Once we added the green theme, we started seeing more domestic fund managers come into the book.

Jigme Shingsar: With the ECB bond buying program and also a flood of European issuances in various formats (most notably EU issuing) obviously a lot of supply and support from the ECB has impacted European issuers in particular. Aldo, can you comment on how you see the potential direction of this in terms of the impact on your funding program. Is this just an opportunity or is there potential for increased competition impacting which markets you pick going forward?

Aldo Romani: Any attractive issuance opportunity creates a large offering of supply and therefore adds to internal challenges. On the other hand, it is also true that these are structural trends that are useful to multiplicity of issuers, and therefore I would not say this is a driver for our funding needs, which are driven primarily by our lending needs, they just provide additional opportunities for distribution. Again, it’s a question of finetuning the recourse to the market and the combination of these different factors that make an issuance program successful in optimizing conditions for a given size. But I wouldn’t overrate the relevance of individual factors and even if they are of such magnitude like the one you have mentioned.

Jigme Shingsar: Piet any comments on growth in European issuance volumes?

Piet Jurging: So the Emergency Bond Buying program has a current envelope of €1.35 trillion and luckily we had positive vaccine news, however, Madame Lagard has said that there will be some policy easing in Europe and that will most likely include an increase in this Emergency Bond Buying program.

But even without an increase, net bond issuances of all Euro sovereigns will be negative in 2021 of about €50 billion. So again, there is a huge support from monetary policy, and the EU is definitely welcome in the SSA market and will probably become the biggest issuer next year. Before they issued their first bonds for this issuer program, there had been some uncertainty around this issuer. However, after the first trade and very strong secondary performance, this uncertainty has been priced out and spreads have stabilized. So, from my point of view, even more tailwinds for 2021 from the ECB and a very positive environment.

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Jigme Shingsar: Ok thank you, it’s great to hear from our Euro-based issuers. Any of the non-Euro based issuers have any commentary regarding the changing dynamics of the Euro markets and how they may impact your plans to issue in that market going forward?

Laura Fan: To what Piet has said, the IADB has not been active in the Euro market for quite some time and we are hoping to change that starting next year. We are meeting with investors virtually to promote the IADB name. The Euro market provides us with currency and investor diversification as well as the opportunity to source longer dated funding.

Andrea Dore: For the World Bank, Euro is the second largest currency of issuance and a natural source for duration. Given the low interest rate environment and investors now having to move further out the curve, the 15-year tenor for Euros is now the new 5-year.

Since the World Bank lends in Euros, it is less constrained when compared to other currencies like CAD where the World Bank does not have any lending activities. In the case of IDA, its balance sheet is denominated in SDR, which includes Euros. That means there’s a natural need for Euros for IDA.

Aldo Romani: To add a point, I think we are going through a phase of a really big challenge from a structural point of view, and what I mean is that there are issues that are relevant for the market beyond the mere size of supply. We even postponed some of our issuances in September because everyone was waiting for the EU to come to market, and the balance of supply and demand was not clear. In fact, we have seen this large supply being absorbed very well by the market based on the expectations that these translations at the supranational level of debt for productive investment has been recognized also by markets as debt towards a different institutional setup, which may indeed create a different context from the one we have experienced thus far. You don’t often need to think of Alexander Hamilton, and his reports on public credit to feel this positive stance with regards to the fact that if public debt in Europe (at least partially for productive investments) is a Euro debt, the credit worthiness improves and facilitates the recourse of the markets everywhere.

There are big challenges as we know though, the productive dimension and expenses that will be financed with that debt are still to be put to the test, because the EU needs to be able to prove that it would be in a better position to monitor the quality, substance, productiveness, and sustainability of that debt than at a national level.

The balance between national, international, and supranational debt still needs to be assessed. These are the questions for me that really influence the expectations of the market going forward. Of course, the policies of the central bank systems are providing a cushion for the time being, but in a few months’ time, a number of these issues, including the persistence of the pandemic crisis, will start to bite again.

So those to me are really the essential points and some of them can be assessed with moves that enhance the credibility of this process, but there are number of questions marks that go beyond total supply and a lot to do with total demand for debt that would be in the market.

GREEN BONDS AND ESG FRAMEWORKS

Jigme Shingsar: All the issuers on this call have been the vanguard of development of green bonds, ESG, and socially responsible investments. Going all the way back to Aldo and your first climate awareness bond and the World Bank with a green bond. I know social responsibility permeates your institutions as well with your funding programs.

Why don’t we start with you Zauresh, you have been issuing green bonds for some time, and albeit with limited volume than some of the others, but then you’ve also issued in support of a range of interesting themes. So perhaps a little about what you do, the sector, and how it works in your institution?

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Zauresh Kezheneva: Great timing of the question – we have recently celebrated ten years of our green bond program. And last year, we achieved another milestone of crossing U$10 billion of green bond issuance. I was thinking about what Andy said, with respect to investors asking how resilient their portfolio was. If we keep this question in mind and think about the composition of our green bond program, it may provide some perspective on how we approach this question.

All of the projects IFC finances have to comply with our environmental and social standards that are viewed to be one of the key ESG standards applied in private sector investments. Disclosures on our website are required for each project before the investment is made. Within this portfolio, IFC has a large pool of climate-smart loans with an agenda to help alleviate climate crisis – dedicated teams of climate experts evaluate these projects. Finally, of this pool of climate-smart projects we select projects that are green bond eligible – this is the third level of filtering in the process. This speaks to the rigor of the selection mechanism.

All of the projects IFC finances have to comply with our environmental and social standards that are viewed to be one of the key ESG standards applied in private sector investments. ZAURESH KEZHENEVA

Transparency and reporting are also key for resilience. And the reporting has evolved so much. IFC no longer reports only the four standard indicators, like megawatts of renewable energy produced, or anticipated energy savings, but aims to provide additional color and details on expected impact. For years we’ve heard investors asking us, ‘if I invest US$100 million in IFC green bonds, what can I actually report to my stakeholders in terms of the targeted impact?’, and so we listened to this, coming up with reported estimates. In our last green bond impact report, we vividly demonstrated that US$1000 investment in IFC green bonds in FY20 is expected to reduce GHG emissions by 2.8 metric tons of CO2-equivalent per year. This is understandable to every type of investor. We believe such continuous dialogue with investors is very important for further evolution of our green and other thematic bond programs.

Jigme Shingsar: Thank you. Aldo, what about the Climate Awareness Bond program which has been around for so long, and now has a long track record to see how things have evolved. How has that impacted your own institution?

Aldo Romani: I would say this year is a crucial year for the market of sustainability funding instruments due to the entry of the EU Taxonomy regulation, which is a law that aims to establish a framework to facilitate sustainable investment by creating the conditions for a shared language and platform for the classification of sustainable economic activities that contribute in a substantial manner to policy objectives. This is the result of a three-year debate among experts and stakeholders, and the EIB can be taken as a test case for this development because we have been held in the necessity of more clarity in green and sustainable finance for a very long time.

This has affected the basis of our approach with our inaugural issue in 2007, and the framework that is now established goes beyond the credibility of our funding program because this framework provides a chess board for discussion in a more reliable and accountable manner going forward. The themes have been subject to a lot of judgment and approach, and this is something that has been gradually extended from climate to other environmental objectives. This also creates a platform for discussion in the extension of clarity to areas of social sustainability that have been neglected.

The Taxonomy Regulation leaves only a number of policy objectives in the area of environment but also mentions that the commission will report on the conditions for an extension of the Taxonomy approach to social objectives by the end of next year. As a result, technical working groups have been created in this field. Now, it is something that has pulled a lot of credibility to our approach and programs, also because two years ago when we saw the regulatory framework evolution, we anticipated the trend by making a strong statement in terms of the link that

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will progressively be implemented between the allocation from our bonds and the projects that live up to the requirements of the Taxonomy. We have put this into the communication of our bonds, and this year while the bank is starting to reclassify its portfolio of lending activities based on the regulations in the area of climate, we have been able to extend the scope of climate awareness bonds from initially renewable energy to further areas of climate mitigating activities.

This is also taking place in for example healthcare projects this year, which have been highlighted by the pandemic crisis, because within the same logical framework we’ve been able to extend eligibilities that we already had in place which were focusing essentially on universal access to affordable healthcare services. This also enables institutions like us with technical expertise and experience in the field to start formulating, based on the increasing interest of the market for these areas, parameters according to the definition of the Taxonomy Regulation that are easier to use and verify than in the past. It is producing very positive results, not only in terms of the relationship between the EIB and its investors, but also more generally, in the infrastructure that is at the disposal of the market to make this dialogue more accountable.

Jigme Shingsar: Piet, Germany has been in the headlines with a renewed focus on green and KFW has been more active with green bonds. Any comment with regards to this trend?

Piet Jurging: First, let’s talk about KFW. Our funding program when it comes to greens, the share is around 10-15%. But KFW sets an environmental commitment ratio of >35% of our business volume, so there is way more room for green bonds.

However, we opted for a straightforward framework which is easy to understand, in which we are just using the proceeds from two loan programs that are renewable energies and energy efficiency construction. Due to that, impact reporting is very easy to measure, with metrics like greenhouse gas reductions that are easy to understand and thus straightforward. As well, we could do some social bonds, however we would have more issues with impact reporting in comparison to our present framework.

As you mentioned our government, they debuted in the green bond market as well in 2020 with a twin strategy, which will make them one of the top green bond issuers in Europe.

Jigme Shingsar: Great, thanks Piet. One development we have had recently is the growth of sustainable development bonds in addition to green bonds, as ESG seems to be a big theme for the sector overall. Andrea, you have been a big issuer of sustainable development bonds and I believe the whole institution has aligned itself to that, can you comment about how that program has developed?

Andrea Dore: The topic of green and ESG is important and very close to our heart. The World Bank issued the first green bond in 2008 that established the blueprint for the green bond market that we have today. To date, the World Bank has issued over US$14 billion in green bonds through 165 transactions in 22 currencies to support many sectors in its member countries from clean energy, eco-agriculture and water management, to reforestation.

Green bonds helped focus attention on “use of proceeds”, the importance of disclosure and transparency, and ultimately the assessment of ESG risk in the investment decision-making process. About three years ago, the World Bank started systematically designating the “use of proceeds” to its entire balance sheet through its sustainable development bond program and has been including this language in the bond documentation. The green bond program is a subset of the World Bank’s sustainable development bond program.

Through its sustainable bond program, the World Bank started to engage with investors in Canada, and globally, to raise awareness about the World Bank’s Environmental and Social framework and its development mandate, that is aligned with the Sustainable Development Goals. As part of this engagement, the World Bank has been highlighting projects across a broad range of sectors that the World Bank is financing to support key development challenges. All the loans the World Bank makes to its member countries support both social and green projects and are designed intentionally for positive social and environmental impact. And every project that the World Bank finances supports its sustainable development mandate that is aligned with the Sustainable Development Goals. The World Bank has issued several CAD bonds highlighting the World Bank’s work in areas such as women and

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children health, sustainable cities, and clean water to name few. More recently, the World Bank issued a Sustainable Development Bond for Scandinavian investors, focusing on nutrition and human capital as part of a World Food Day commemoration. Recently, the World Bank published its first impact report covering its full balance sheet.

To date, the World Bank has issued over US$14 billion in green bonds through 165 transactions in 22 currencies to support many sectors in its member countries from clean energy, eco-agriculture and water management, to reforestation. ANDREA DORE

Jigme Shingsar: Laura, I think you picked Canada to issue your first benchmark sustainable development bond last year, and I know you’ve spent a lot of time to make sure your framework is in place. What are your plans going forward?

Laura Fan: Our sustainable development bond framework was developed because, like some of our peers, we believe that all of our lending promotes sustainable development. The mission of the IADB is to improve lives in Latin America and the Caribbean by reducing poverty and inequality in a sustainable, climate-friendly manner. To achieve the mission, we have an Institutional Strategy focused on strategic priorities such as climate change and environmental sustainability, gender equality and diversity, social inclusion and equality, etc. Each of these strategic priorities are then mapped to the Sustainable Development Goals. We report on an annual basis how we have contributed to achieving each of the SDGs. The Bank’s lending is targeted to one or multiple strategic priorities, and therefore our lending is also mapped to one or multiple SDG(s).

For the IADB’s lending projects, in the preparation phase, there is a climate change as well as gender and diversity specialists assigned. For each project, there is an environmental and social strategy as well as an environmental and social assessment. In that respect, we’ve developed a framework that takes into consideration our mission, institutional strategy, and results-based indicators for the achievement of the SDGs. We have spotlighted certain SDGS, e.g., SDG #3 (Good Health and Well-Being), SDG #11 (Sustainable Cities and Communities), as well as SDG #13 (Climate Action). We chose Canada to issue our inaugural sustainable development bond because there was extremely strong interest for such a product from domestic Canadian investors, and when the framework was finalized, there was an issuance opportunity, so we jumped in.

We chose Canada to issue our inaugural sustainable development bond because there was extremely strong interest for such a product from domestic Canadian investors. LAURA FAN

Jigme Shingsar: Going back to our investors, we have heard about green bonds and sustainable development bonds, which are a slightly different structure, but ultimately still very ESG- and SRI-focused. Do you see both of those categories as interchangeable for your purposes or in terms of your mandates internally?

Andy Kochar: We welcome the arrival of a broader sustainable development bond market, purely because if you look at the green bond market, it has done a very good job over the past 15 years and we now have good research out there that shows the value proposition that these bonds bring in terms of reducing carbon emissions. But we never

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really had a framework that would be going above and beyond green bonds, when we talk about investing in either green or sustainable securities.

Issuers, especially SSA issuers, are at the forefront of bringing the sustainability initiatives and making them more formalized, as this is the one thing that investors broadly find a challenge with. My discussions with many of my peers on the street suggest that investors struggle with the sheer volume of money coming in the sustainability space (globally, including Canada), and how we should come up with a framework to link these proceeds with the desired outcome they are being raised for.

The question is not the purpose of this issuance (development goals are clearly indicated), but how can they help the investor understand and take that framework to their client and let them know of the impact of this investment and what you are getting in return as an investment. ANDY KOCHAR

There is a big scope for green bonds and we see that in different parts of the market. SSAs are at the forefront because they are ahead of the curve, we’ve seen deals (i.e. World Bank) come from these issuers for the past ten years and they are the benchmarks that a lot of local issuers use for best practices. The question is not the purpose of this issuance (development goals are clearly indicated), but how they can help the investor understand and take that framework to their client and let them know of the impact of this investment and what you are getting in return as an investment.

Green is easier to answer as a question, i.e. the use of proceeds, reporting projects for new financings/refinancing’s, matching the life of the project with the issuances etc. All of this becomes a little challenging with sustainability because there are so many goals, and eventually all of these tie to the one goal of reducing income inequality. It’s a hard goal to achieve, but all these different sustainable development goals lead to that common goal of reducing income inequality. The more reporting and hashing out of the framework that comes from the SSAs to make those points, the more the investor base will get comfortable with investing in these sustainable development bonds.

Otherwise, I really look forward to the time, and I don’t think we are there yet, when the valuation of these securities reflects those goals. We aren’t there right now, a lot of investors use green and sustainable bonds interchangeably, but there will be a time where the valuation of these securities will reflect these goals.

Jigme Shingsar: Alain, I know there isn’t a dedicated green portfolio right now, but we do have corporate needs that are following a lot of the sustainable development goals. How do you view the development of sustainable development bonds?

Alain Hage: Yes, they are distinct but, at the moment, from our standpoint we don’t separate ESG into different categories (green vs sustainable). How we view and invest in green or sustainable bonds, comes from an enterprise philosophy. SSAs are at the forefront of impact assessments, and that’s something we want to look into and clarify further from our end.

In the future, we hope to implement better reporting to management on each deal, in terms of the impacts and the type of projects our investments are being directed towards. Currently, we aren’t there yet, but we are working on it. This could potentially increase our participation into the ESG market as we get more specific investment mandates into this sector.

Alex Caridia: Most of what we are seeing in Canada at the moment is green, and I think we saw a big jump in volumes about three years ago, we jumped from CA$2 billion or so a year to around CA$6 billion, which we’ve been consistent at over the last three years. Canada is a little behind other regions, Europe in particular, when it comes to issuance volumes but also looking at green vs sustainable bonds.

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We are starting to see the emergence of domestic issuers looking at social bonds, for example the City of Toronto issued the first social bond relatively recently, and I know there are some others in the pipeline. I also know some larger issuers domestically are talking about putting different types of programs in place, so I think it will be an interesting market for issuers and in terms of investors base, it is also very topical. Any conversation we have with investors the topic comes up.

Hopefully we will see Canada move in line with some other regions around the globe. At the moment looking at secondary markets, green issues tend to trade quite a lot through non-green issues and I think partially that is due to liquidity because obviously there is less green supply, but hopefully we will see that reflected in the primary issuance spreads over time as well.

Andy Kochar: In the Canadian economy and the Canadian geography, we don’t have a lot of green projects, which is why we look outside of Canada for this exposure, and this is where the SSAs play a very critical role in our market to bring that funding need that we can actually lend to. I think that is something that should always be considered by issuers, because we aren’t a very green economy.

Secondly, the fact that sustainable development bonds go beyond green bonds allows active managers to be even more active. With the big broadening of green bonds in the last ten years, investors were happy about getting that exposure through ETFs, but an active manager gets the opportunity to become even more active to show the impact and the work they are doing for the clients’ portfolio when the market gets broadened out, and I think sustainable development bonds gives us that opportunity.

Aldo Romani: I would want to avoid the distinction between green and sustainable, in the sense that green means environmental, and then you have social objectives that all pertain to sustainability as it is taking shape internationally.

There are two areas that need to be highlighted, one is the area of the clear link between the proceeds and the destination of the funds. The essential features of bonds that have established these links have been debated in the context of the principles, which in the course of time have extended their attention to social objectives by the social bond principles and the sustainability bond guidelines. So this is the framework with regards to the link between the proceeds and the destination of the funds, which does not have anything to do with the distinction between green and sustainable.

EIB intends to align with EU green bond standard and any social standard that would be retained by the EU in the future, trying to provide more clarity, transparency, and reliability to investors. ALDO ROMANI

The other area, which has been addressed by the EU Taxonomy, is adding value. The Taxonomy is making things more comparable, which is good for the fair competition in the markets, because you can’t have fair competition and efficiency in the markets if everyone defines green and sustainable the way they want, and in this regard I realize I wasn’t particularly to the point when I was speaking about the EIB. The EIB has made a very clear statement recently to say that it will align the classification of all its green activities with the framework entered into force by the Taxonomy regulation. And secondly, we have publically stated in our frameworks that the EIB intends to align with EU green bond standard and any social standard that would be retained by the EU in the future, trying to provide more clarity, transparency, and reliability to investors. With the certification of an external auditor that certifies our bonds and designation of the funds with reasonable assurance, and not with limited assurance as prevailing practice in the market. Thank you very much and sorry for this last minute intervention.

Jigme Shingsar, RBC: Why don’t we wrap it up here. Once again on the behalf of RBC and the global SSA team, thank you very much to all our panelists for joining, it has been a great conversation. Thank you again for your time.

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CANADIAN PUBLIC SECTOR ISSUERS

Economic outlooks for Canada post-COVID are broadly positive, but forecasts are careful to include a range of scenarios as uncertainty continues in the second wave. In this environment, provincial and Crown public sector issuers are navigated market fluctuations and volatility through 2020 that may well continue on into 2021.

Here, issuers and investors in the Canadian market tell us how they traversed the domestic and international markets over the last 12 months, their thoughts on the economic future and how ESG has widened as a topic for Canadian institutions.

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PARTICIPANTS:

Craig Wright Charles Allain Senior Vice President & Chief Economist Executive Director, Debt Management RBC Capital Markets Province of Nova Scotia

Alex Caridia Mike Manning Managing Director and Head Executive Director and Chief Executive Government Finance Officer, Capital Markets RBC Capital Markets Ontario Finance Authority Kevin Martin Renaud De Jaham Director, RBC Government Finance Vice President and Treasurer RBC Capital Markets PSP Investments

Jigme Shingsar Guillaume Pichard Managing Director, US Debt Capital Markets Managing Director, Capital Markets and Treasury RBC Capital Markets Ministry of Finance, Province of Quebec

Stephen Thompson Rod Balkwill Executive Director, Capital Markets Executive Director, Treasury Management Branch Treasury Board and Finance Ministry of Finance, Province of Saskatchewan Province of Alberta Nicolas Moreau Dominic Sicilano Director General, Funds Management Division, Vice-President Financial Sector Policy Branch Portfolio: Construction Active Duration Department of Finance, Canada Addenda Capital Dave Ayre Ryan Goulding Treasurer Fund Manager Canada Mortgage and Housing Corporation Leith Wheeler (CMHC)

Chad Buffel Abid Dobani Principal Portfolio Manager Managing Director, Head Portfolio Management Export Development Canada (EDC) Execution and Strategy – Corporate Treasury RBC Capital Markets

Don Delisle Director, Capital Markets Province of Manitoba

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MACRO ECONOMY/RATES

Alex Caridia: Welcome everyone. Craig, how you do see the Canadian and provincial economic outlook for 2020 and 2021?

Craig Wright: I’ll give a broad economic environment outlook. Firstly, any outlook in the current environment will be determined in the near term by the evolution of Covid and policymakers’ responses to the second wave. Our assumption is that we are not going back into a full lockdown since neither the finance ministers nor the economy can afford it, so we are looking at more tactical round of tightening which is what we are seeing across provinces and across many parts of the globe. As we move forward we have seen a decent bounce in third quarter growth but it’s very much the easy part of the recovery as the economy transitions from recession to a recovery. Economic growth in the third quarter came in at 40.5%. We have been allowing for some second wave impacts which will take some of the growth out of the fourth quarter. We expect 1% growth on an annualized basis for the fourth quarter, or basically flat on a non-annualized basis. So there was a big pop in the third quarter and its back to basically flat in the fourth quarter, and then into next year growth prospects improve. For 2020 as a whole this year we have a decline of just under 6%.

Alongside weak global growth and high levels of economic uncertainty, we are still looking at a very modest and vulnerable recovery. CRAIG WRIGHT

Moving forward the risks are starting to tilt to the upside, with the enthusiasm around the vaccine production and distribution. Our growth forecast for next year is about 5%, but depending on how the vaccine rolls out the risks of that are probably increased on the upside.

Global growth is still challenged, we saw an upward revision to growth but it’s still expected to be down on YoY basis by 4.5% by the IMF. We continue to see those challenges for Canada in terms of protectionist sentiment which was in place before Covid and accelerated through the pandemic. People tend to look elsewhere to blame in a weak economy and trade tensions will continue to rise. We have also seen a move towards bilateral trade agreements rather than multilateral agreements. Canada doesn’t have a lot of political/economic weight so we do better in a multilateral world rather than a bilateral world. So maybe there will be some hope with the new administration in the US but we can leave that for a later discussion.

Alongside weak global growth and high levels of economic uncertainty, we are still looking at a very modest and vulnerable recovery. For exports and investments, we’re not looking at much growth this year and even sluggish recovery next year given the elevated uncertainty and global challenges. Growth in Canada is going to continue to be driven by the consumer and anything consumer related (housing or retail spending) is a real ‘V’ shaped recovery. This reflects a number of factors but key among them is fiscal stimulus. If you look at the second quarter, wages and salaries earned declined by $22 billion and federal transfers to individuals rose by $55 billion, so there is a huge improvement in debt to income ratio and the savings rate in Canada went up substantially. Consumers have a lot of savings, that will buy some time through the next few quarters but eventually we will need more on the employment side to support the next leg of growth. Moving forward, all the attention will be on the business side. To the extent we see businesses being able to stay open, reopen, and expand, we will see employment prospects improve which will get us back to pre-crises levels as we move through next year.

Support for growth will continue to come from fiscal and monetary policy. We will see fairly continued aggressive spending plans and at some point we will start to look for longer term plans with a pro-growth agenda, but near term it is about managing the health and economic crisis, and then a later tilt to recovery. Monetary policy is very accommodative, maybe proving slightly less accommodative from QE perspective but still low interest rates are expected to hold over the entire forecast horizon.

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When we look at the growth forecast across the provinces we can’t just look at only Covid shock as there has also been a huge energy shock, and overlaying these two it’s not surprising that the weaker provinces are those that are heavily dependent on energy. We have all provinces declining this year and the weakest in our perspective are Newfoundland and Labrador and Alberta. Alex back to you.

Alex Caridia: Thank you Craig. Let’s turn to the public sector issuers for their view on the economic backdrop.

Nicolas Moreau: After the record decline over the first half over the year, the economy has rebounded significantly over the last few months, we don’t have the full reports as Q3 numbers haven’t been published, we believe this rebound was mostly broad based. But more pronounced in consumer spending and residential investment. This is mostly reflective of pent up demand in those sectors, and the highly supportive effect of the fiscal and monetary policies. We have also seen sharp rebound in the labor market, overall about 4/5th of the net job losses so far have been recouped. Despite this strong rebound, the full economic recovery from the covid-19 recession has a long way to go. The pace of gains is now slowing, as the initial boost from the lifting of many restrictions and reopening of businesses is fading. Over 700,000 net job loss remains and 600,000 Canadians are still working sharply reduced hours. As a result, the outlook remains very uncertain, with the timeline for a full recovery and the long-term impacts on the economy still clearly being determined by the health situation. While the Department revised forecast will be released with the upcoming Fiscal and Economic Statement which is expected to be released over the coming weeks. Overall, the Bank of Canada latest forecast published in the October Monetary Report suggests that after declining by about 5 ½ percent in 2020, the economy is expected to expand by almost 4 percent on average in 2021 and 2022.

Despite this strong rebound (in the labor market), the full economic recovery from the covid-19 recession has a long way to go. NICOLAS MOREAU

Alex Caridia: Mike, do you have an economic update from the Province of Ontario?

Mike Manning: It has certainly been a very tough year, and we actually just put out our annual Ontario Budget a couple of weeks ago on November 5th. Our planning assumptions are relatively recent here, and are in line with what Craig and Nick were saying. We are using a consensus forecast with some prudence built in, looking at a decline in real GDP of 6.5% this year, and that has 0.4% of prudence built in, so private sector forecasts would be -6.1%. We are looking at a healthy +4.9% rebound next year, +3.5% the year after, and +2% in 2023. As everyone said, the uncertainty is extremely high, and what our government did this year that was different is that they had some alternative growth scenarios which they published as well. We have a faster growth scenario, which sees a growth rate next year of +7.5%, and we also have a slower growth scenario where the rebound next year is only +3.3%.

Alex Caridia: Guillaume, can you provide on update on Quebec’s current economic situation?

Guillaume Pichard: We have just released a fiscal update on November 12th. Like everyone it is going to be very challenging going forward. We have expectations for GDP for 2020 to decline by 6% and we do expect like everyone else a good rebound in 2021, around 5%, in line with the private sector. We only published our forecast for these years, and we will publish the rest in our budget next March. When you look at all the uncertainty surrounding Covid and the future of growth in the economy, it’s still too early to put out long-term projections. There is some positive if you look at the economy, the housing sector, we see it growing up close to 10% in 2020 in terms of housing starts. Retail sales are at the level they were in February 2020, and overall the job market is around 95% of what we had before Covid. There are other indicators as well, international exports are on their way to recovery in the near term, and you can say the same for manufacturing services in general. However, some sectors that are still expected to lag including tourism and entertainment, that’s where the jobs and growth are still not there and it is unfortunately very hard to predict how and when a full recovery in these sectors will occur.

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Alex Caridia: Steve, any comments on the economic backdrop in Alberta?

Stephen Thompson: We have a full economic update coming in soon. If you look at our last release, we were projecting a drop of 6.3% in-year for GDP. It’s easy to forget at this point that prior to Covid we were already dealing with a Russian-Saudi oil price war that was taking a toll on the energy industry and on provincial revenues. Through the year we have seen a massive drop in energy investments, in the third quarter we saw some consolidations going on, so it’s interesting to see what happens in the sector in the coming quarter. Unemployment has remained high but we have some resilience, obviously consumer spending is down and we are seeing a slowdown in population growth. I would suggest you hang on and look at our coming fiscal outlook release in the very near future.

Alex Caridia: Don, do you have an economic update from Manitoba?

Don Delisle: We have some challenges but we probably are in as good shape as we could’ve hoped for going into the first wave of Covid. Manitoba actually balanced its budget last year, so that was cause of celebration that got lost with the issues this year. We used 9 private forecasters, and the expectation for the moment is a 5.2% contraction in the current year and a pop in 2021 of 4.8%. YTD we have been relatively lucky in the sense if you look at key economic forecasts such as real GDP and unemployment (lowest in the country), and private sector employment, merchandise exports, wholesale/retail trades, we are in the top 3 in the country in the latest statistics. Again it’s probably as good a shape as you could hope, now it’s no surprise if you watch the headlines, the second wave is probably hitting us harder than just about anybody in the country right now. We are in a lockdown at the moment, but we went through the first one fairly quickly, and as new information comes in on our economic forecasts we will see what happens – whether it is a V shape recovery or a more gradual recovery. As Guillaume said, the uncertainty right now is front and center.

Alex Caridia: Rod, in terms of Saskatchewan do you have any comments on the economic backdrop?

Rod Balkwill: I think the theme is holding true for Saskatchewan as well, which is that economically things are better than they looked initially in April when we produced our first forecasts. We had built three scenarios – good, bad, and ugly; the base case was the ‘bad’ scenario, and that was 6.3% decline in GDP. In Q1 we revised that upwards to -5.5%, and with our mid-year report, real GDP was again revised to -5.0%. Economically there was improvement from how the reopening happened more quickly, and how in Saskatchewan export markets weren’t really impacted by Covid the way others might’ve been, as grain, fertilizers, and oil still shipped to export markets. That meant that the exposure on the real GDP side of ledger wasn’t as great. With that said unemployment and job losses were significant, we don’t see those coming back nearly as quickly as the GDP expected recovery, So while we think GDP can come back to pre-Covid levels in 2022, it is probably 2023 before employment completely recovers. I think I’ll leave it there, but again better than expected but I would also temper that and as to Don’s point, ‘we don’t know what’s coming yet’, so probably shouldn’t get too optimistic.

Alex Caridia: Charles, do you have any comments on Nova Scotia?

Charles Allain: Our forecast for this year and next are broadly similar to the Canada average, and at our July 29th fiscal update we projected -6% this year and +4.8% next year. We’ve had a pretty good story in terms of Covid cases and deaths, a month ago I would’ve said we only had a few cases depending on the day, now we are up over 20, so we are still not out of the woods. I think the Atlantic bubble is working pretty well, and working better than most places in the country, nevertheless, we aren’t out of the woods. Tourism is a big focus here, with revenues from tourism typically at $2.6-2.7 billion per year, which will be down $900 million - $1 billion, so it’s down a lot this year. Obviously the retail sales are doing quite well, so that’s back to normal but it depends on the industry you are talking about, as retail storefronts are not doing well, including restaurants. We have an update coming up in December, about three weeks from now, hopefully we will give you a better picture this year for the balance of the year. We won’t have an out year forecast until we release a budget sometime early next year.

Alex Caridia: That brings us through all of the provincial issuers. Let’s move on to the crowns. Dave, one of the questions you get asked on every investor meeting that I’ve had with you is around housing and your predictions for house price growth in Canada and leverage in the system. Would you care to comment on that?

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Dave Ayre: I would say the housing side has been a big topic this year. When Covid hit in March and things started to get bad, CMHC came out quickly projecting some fairly significant declines in home prices for Canada this year, in the 9-18% range. If you look back to March/April, there was a big temporary decline. What happened after that was that we saw what our economic folks believe to be temporary factors which kicked in to really boost the housing market, and we are now seeing levels that are approaching all-time highs in a number of areas. There’s been a Covid-driven shift towards detached homes, away from condos and apartments as Covid lockdown has seen people trying to buy more space. There was obviously a decent amount of pent up demand from that spring market when Covid hit and everything shutdown, that got pulled through into the summer market. Also, low mortgage rates have been a factor driving housing demand. I would say that going forward our economics folks see a lot of potential headwinds out there. We aren’t providing any specific long term forecast at this stage, but CMHC does see risks to current house price levels for sure. Particularly, if we did get a significant second wave with major shut downs. Another factor that is worth mentioning is looking at the special treatment that OSFI has provided banks on Canada mortgages, so anyone who has been in deferral since the crisis, from the banks perspective that’s been protected as they haven’t had to set aside additional capital. Household indebtedness is something CMHC has expressed concerns around due to the risks it presents for Canadians.

There’s been a covid-19-driven shift to detached homes, away from condos and apartments as covid-19 lockdown has seen people trying to buy more space. There was obviously a decent amount of pent up demand from that spring market when covid-19 hit and everything shutdown, that got pulled through into the summer market. Also, low mortgage rates have been a factor driving housing demand. DAVE AYRE

Alex Caridia: Chad, in terms of the macro outlooks from EDC’s perspective, how has lower economic activity impacted EDC’s business model, and with higher growth expected next year do you think that will have an impact on EDC?

Chad Buffel: From EDC’s perspective, we are more counter-cyclical in a lot of the activities that we are involved in. Looking at the core products and business we typically do, we have seen two-fold increases in terms of usage of credit insurance and bonding. Our financing commitments haven’t seen the same growth, but there have been

PROVINCIAL ECONOMIES TO RECOVER STRONGLY—THOUGH STILL PARTIALLY—IN 2021 Real GDP, annual % change (2020 and 2021) an % change from 2019 to 2021

Source: Statistics Canada, RBC Economics

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CANADA GDP BY INDUSTRY % change

Source: Statistics Canada, RBC Economics FINANCIAL MARKET FORECASTS December 11, 2020

CANADIAN AND US INTEREST RATES Interest rates (%, end of quarter, ) Forecast Forecast 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3 22Q4 2019 2020F 2021F 2022F Canada Overnight 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.50 0.50 1.75 0.25 0.25 0.50 Three-month 0.21 0.20 0.12 0.15 0.15 0.15 0.20 0.20 0.25 0.25 0.50 0.55 1.66 0.15 0.20 0.55 Two-year 0.42 0.29 0.25 0.30 0.30 0.30 0.35 0.35 0.55 0.75 0.90 1.10 1.70 0.30 0.35 1.10 Five-year 0.59 0.37 0.36 0.45 0.50 0.60 0.70 0.80 0.95 1.05 1.20 1.35 1.69 0.45 0.80 1.35 10-year 0.70 0.53 0.57 0.70 0.75 0.90 1.00 1.05 1.15 1.25 1.35 1.50 1.70 0.70 1.05 1.50 30-year 1.31 0.99 1.11 1.25 1.30 1.40 1.45 1.50 1.60 1.65 1.75 1.85 1.76 1.25 1.50 1.85 Yield curve (10s-2s) 28 24 32 40 45 60 65 70 60 50 45 40 0 40 70 40

United States Fed funds* 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.38 0.38 0.63 0.63 1.63 0.13 0.13 0.63 Three-month 0.11 0.16 0.10 0.10 0.10 0.15 0.20 0.25 0.40 0.55 0.70 0.75 1.55 0.10 0.25 0.75 Two-year 0.23 0.16 0.13 0.15 0.20 0.25 0.40 0.60 0.85 1.00 1.25 1.50 1.58 0.15 0.60 1.50 Five-year 0.37 0.29 0.28 0.40 0.50 0.60 0.75 1.00 1.05 1.15 1.30 1.55 1.69 0.40 1.00 1.55 10-year 0.70 0.66 0.69 0.95 1.05 1.15 1.20 1.25 1.30 1.40 1.50 1.65 1.92 0.95 1.25 1.65 30-year 1.35 1.41 1.46 1.70 1.70 1.75 1.75 1.80 1.85 1.90 1.95 2.00 2.39 1.70 1.80 2.00 Yield curve (10s-2s) 47 50 56 80 85 90 80 65 45 40 25 15 34 80 65 15

Note:Yield Interest spreads Rates are end of period rates. * Midpoint of 25 basis point range Source:Three-month RBC Economics T-bills 0.10 0.04 0.02 0.05 0.05 0.00 0.00 -0.05 -0.15 -0.30 -0.20 -0.20 0.11 0.05 -0.05 -0.20 Two-year 0.19 0.13 0.12 0.15 0.10 0.05 -0.05 -0.25 -0.30 -0.25 -0.35 -0.40 0.12 0.15 -0.25 -0.40 Five-year 0.22 0.08 0.08 0.05 0.00 0.00 -0.05 -0.20 -0.10 -0.10 -0.10 -0.20 0.00 0.05 -0.20 -0.20 10-year 0.00 -0.13 -0.12 -0.25 -0.30 -0.25 -0.20 -0.20 -0.15 -0.15 -0.15 -0.15 -0.22 -0.25 -0.20 -0.15 increases30-year across the-0.04 board-0.42 in terms-0.35 of -0.45information-0.40 needs-0.35 -0.30and processing-0.30 -0.25 of -0.25changes.-0.20 From-0.15 a resilience-0.630.00 -0.45 perspective-0.30 -0.15 weNote: have Interest learned Rates howare end to ofwork period with rates. our * Midpointcore products, of 25 basis adapting point range them while creating other products in response to the pandemic. The Government of Canada’s Emergency Business Account (CEBA) program, administered by EDC, has deliveredExchange essential rates (endliquidity of quarter) to more than 660,000 companies. It provided businesses with working capital for their domestic and export transactions. Forecast Forecast

20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3 22Q4 2019 2020F 2021F 2022F TheAUD/USD Government0.61 0.69of Canada’s0.72 0.75 0.74Emergency0.72 0.70 Business0.69 0.68 0.67 Account0.67 0.67 (CEBA)0.70 0.75program,0.69 0.67 administeredUSD/CAD 1.41 by 1.36EDC,1.33 has1.28 delivered1.28 1.28 essential1.29 1.30 1.31liquidity1.32 1.32 to more1.33 1.30 than1.28 660,0001.30 1.33 companies.EUR/USD 1.10 1.12 1.17 1.20 1.18 1.16 1.15 1.14 1.13 1.12 1.13 1.14 1.12 1.20 1.14 1.14 USD/JPY 107.5 107.9 105.5 103.0 100.0 98.0 97.0 98.0 99.0 100.0 101.0 102.0 108.6 103.0CHAD98.0 BUFFEL102.00 USD/CHF 0.96 0.95 0.92 0.88 0.90 0.91 0.93 0.95 0.96 0.98 0.98 0.98 0.97 0.88 0.95 0.98

GBP/USD 1.24 1.24 1.29 1.32 1.27 1.23 1.21 1.19 1.16 1.15 1.16 1.18 1.33 1.32 1.19 1.18

The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of 101the copyright | RBC CAPITAL holder in writing.MARKETS The statements and statistics contained herein have been prepared by RBC Economics Research based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

®Registered trademark of Royal Bank of Canada. ©Royal Bank of Canada. CANADIAN PUBLIC SECTOR ISSUERS

Our role in helping facilitate companies along their supply chains or introducing them to new customers, will probably be facing some challenges under this environment. We have a large advice and export knowledge base, and for the last four years we have been growing that angle of our business. This has helped many exporters in the crisis, and it has increased our footprint to reach more exporters and provide them what they need. So, I think we are seeing a lot more leverage in terms of our knowledge base, whether it’s the broad advice we are giving them, or the increased participation, with well over 10,000 visits, in our webinar sites. We’ve had over 60,000 hits on our website and are partnering with industry associations and chambers of commerce to let them know what support is available, but also to hear them so we can know what their needs are and how we can adapt our systems to support. So, there is a lot of activity going on, and like I say, for us it’s a boom, and it really speaks to the stresses and needs that are out there.

So far, we are seeing exports decline slightly, and I think next year a lot of it will depend on the progress that is made by my colleagues here, and on the government side on how we can keep the lines and chains of trade open. To the extent that we can facilitate this. That is a role we will be playing. We are reasonably optimistic, and with our plans, programs, and ability to adapt these programs to the changing situation, we see opportunity for exporters.

Alex Caridia: Thank you Chad. The next topic for discussion is interest rates. Some of you may remember I did a poll last year about where we thought the 10-year Canada yield would be in a year and the average for all of us was around 1.43%, so exactly double what it is now, and the high was 1.80%. Maybe to kick off the rates discussion, to ask Craig to provide us with RBC’s view and then I want ask the investors to talk about how they’ve dealt with their portfolios in this environment.

Craig Wright: Thanks Alex, and I’ll say at the outset I wasn’t on the call but we do have the same forecast as the Dean of Bay Street. So I was exactly the same as Mark Chandler would’ve been. As we move forward, from a short term perspective it’s an easy call, we’ve seen a change in governor but no dramatic change in policy, with a couple of exceptions: one is that Governor Macklem talks about quantitative easing, whereas Governor Poloz talked about large scale asset purchases. Governor Macklem has also brought back something that was part of the recovery plan post the global financial crisis when he was with Governor Carney and that’s forward guidance. The net result is that the Bank of Canada has locked in overnight interest rates at 0.25% for the foreseeable future. I think they’ve used most of the tools in their toolbox with the exception of negative interest rates. We hope and think they won’t be doing that as we think given the experience of other central banks that have tried negative interest rates they are less inclined to do it. They still talked about an effective lower bound at 0.25%, and a theoretical lower bound at -0.50%.

I think the overnight rate call is fairly easy over the near term, and that’s not much movement at all so we are steady and plugging in the forward guidance to the BoC forecasts takes you out to 2023. The risks to that view are to a mover earlier as the vaccine rolls out and we continue to see stimulus coming through the system. We could see a bit of a headline move at least in inflation as we move into next year, but that’s probably more a story for market rates. So we could see some upward pressure on market rates, as markets are now, with inflation as low as it is, increasing positioning for that reflation trade. Fiscal and monetary policy makers are trying to get reflation, or at least prevent deflation. We will get some level up move in prices from some low base effects and upward moves in commodities which will start pushing headline rates up that may feed in to that inflation story. I think it’s more a concern than it will be in reality, but we could see some pressure on long term rates as we move forward, even with overnight rates flat where they are.

Alex Caridia: Thanks Craig, passing it over to any of the investors on the back of Craig’s comments. How have your portfolios or investment strategies fared in the light of what Craig just said and reflationary pressures, as well as the low interest rate environment that we’ve been in this year?

Dominic Sicilano: It has been a very challenging year for us, in terms of our duration strategy overall because of the macro process. I think we were a little bit blindsided by the full impact of Covid, somewhere in the month of February and March. We still think the consumer has a lot of pent up savings at this point, I won’t disagree with the call from Royal in the sense that I could see US 10-year rates heading towards 1.5% on the vaccine and a bit of economic follow

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through. We are going to have a president who will continue to provide stimulus, which we think is positive on pent up demand and probably move the dial on inflation. It can be seen as transitory, I still think there’s going to be a bit of an uptick on that and rates should move higher in relative terms, but I’m not calling for 2.5% to 3% rates at this point. But we think also that potentially the curve could stay a little steeper in that environment as well.

Alex Caridia: Ryan, any comments from your side? Ryan Goulding: I would echo much of what Dominic said, I think the realization of sustained inflation is going to be further delayed than what we are seeing. A lot of this stimulus is targeting near term impacts, but for sustained inflation we need that year over year wage growth. There is just simply an enormous amount of labor slack in the market, and an incredible amount of reskilling that needs to happen in order for the wages to come up which is going to take a lot longer time. However, I do agree that we are going to probe a higher level of rates, but I think that we will see currency volatility pickup as well. So the release valve for all this stimulus is either going to be in the long-end of rates or in the currency. We are seeing long-end curve volatility pickup, and we think there will be opportunities there. I might not call for as high of a 10-year rate, because I think the higher that rates go there will be a feedback loop to risk assets, and I don’t think risk assets will be able to sustain current levels if rates go too high. So I would see 10-year rates try and go over 1%, maybe 1.10% or 1.20% in the US, but that will put the brakes on the risk assets pretty soon, which could in turn drive 10-year rates back down a little bit.

Alex Caridia: Thanks so much. Abid on your side?

Abid Dobani: It feels like any time we get into a negative real rate environment, the challenges for investors are endless. Taking a step back, we have to be cognizant that the challenges I reference are generally reserved for those who have access to extremely cheap capital, as we tend to ignore those who don’t have the capital to sustain a basic quality of life. We are closely following how the socio-economic divide will react under global regime shifts. This instability will be a bellwether for decades to come as the divide has reached levels that are unsustainable as the time for action has long passed. Actions taken by the federal and provincial governments alongside central and commercial banks will drive sentiment for the foreseeable future, but more importantly, drastically alter the quality of life for many in our communities who are most vulnerable.

Alex Caridia: Thanks Abid. Just in terms of the pension side, Renaud, I guess you are wearing two hats, one on the investing side and the other on the issuing side, can you comment on how the rate environment has impacted either, or both of those sides of the business?

Renaud De Jaham: Definitely. I can tell you that from an issuer’s perspective, it can be attractive to see low yields and you would eventually want to extend the curve and issue long bonds. In reality, when you look at the debt programs in general, those products are more niche products, and the impact they have on the overall issuance risk and eventually also the average cost of debt is very residual. What we look at is the real demand to issue longer term and take advantage of the curve. You have to have demand, which is not necessarily always the case, so there might be opportunities. From an issuer perspective, we have to be prepared and eventually take advantage of those opportunities, if we see that there is demand from investors.

What we look at is the real demand to issue longer term and take advantage of the curve. RENAUD DE JAHAM

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DOMESTIC FUNDING

Alex Caridia: Thanks very much Renaud. That’s a great segue into the next discussion point about domestic funding. This year has been an interesting year on so many fronts. We’ve broken a number of records in terms of deal size, number of deals, funding programs, number of carve-outs, you name it and we’ve broken almost every record. To get the discussion going I’ll pass it over to Kevin to give a quick overview of what’s happened domestically.

Kevin Martin: It’s been a remarkable year in terms of the total issuance volumes that we’ve seen. Right now based on everybody’s updated forecasts, we are expecting provincial issuance to come in around $155 billion, using the provincial fiscal year which ends March 31. That compares to $86 billion in total issuance from the provinces last year, so almost a 2x increase in borrowing requirements by the provinces in fiscal 2020. The good news is that this bond supply has been very well absorbed by the markets thus far, we calculate roughly $130 billion, over 83%, has already been issued and we are only 75% of the way through the fiscal year. Roughly two thirds of the provincial borrowing this year has been in the Canadian market, with about a third in the international markets. Within the Canadian market, the issuance has been fairly well balanced across maturity terms with about 35% in the 5-year area, just over 36% in 10 years and roughly 27% in long bonds. That is less long bond issuance than we have seen in prior years, but still impressive numbers nonetheless, and certainly a testament to the investors’ collective willingness to absorb the extra supply in 2020. The Bank of Canada has also been a factor, starting its Provincial Bond Purchase Program (PBPP) in May. The Bank has purchased over $30 billion of provincial bonds in the secondary market in 2020.

When you look at the overall credit spread reaction that we have seen, if I told you those type of projected issuance numbers in January/February, you might have said that spreads would have to be materially wider. In fact, provincial credit spreads have been very well behaved since April. Now it wasn’t all rosy of course, we saw quite turbulent times in March and April when liquidity was certainly top of mind for investors and issuance became a major challenge for most of the issuers, not only in the term markets but also the money markets in Canada. But with the Bank of Canada introducing their asset purchase programs, both on the money market and term bond side for provincials, that certainly was a shot in the arm for our issuers in the middle of April and we did see credit spreads tighten sharply into those announcements in April and continue on tightening through the second half of the year. Credit spreads for the provinces have been remarkably stable since the spring, they have moved in a 7-9 basis point range for Ontario in both the 10-year and 30-year bonds since August, so I think that is certainly a testament to the resiliency of the market since the very volatile days we saw in March and April.

Alex Caridia: On the back of Kevin’s comments, how receptive has the domestic market been to your funding program, on the issuer side? Any comments you want to make on domestic funding year-to-date?

Guillaume Pichard: Once we got out of the eye of the storm in March/April, honestly, so far so good. Both domestically and internationally, I think provincial bonds, the credit and how it’s viewed, has been very well received. And as you mentioned its record issuance for provinces, just ourselves we went from a $15 billion program to just crossing the $30 billion mark for this year and that’s quite an increase for us. So that’s honestly quite an achievement for the market and for us. We are very happy because when we looked at the numbers early on, I’m not going to say we weren’t nervous, I think a lot of us were nervous back in April, but you know having achieved that amount of funding this year is very positive, and international markets have been very receptive. We’ve done 4 international benchmarks: 2 in US dollars and 2 in Euros. We did our biggest benchmark ever, US$3.25 billion 5-years, and we’ve also done a very large Euro benchmark of EUR2.25 billion. So very receptive markets, and I know Ontario just did a super deal in Euros as well. Things are looking pretty good for now, but there is still lots of uncertainty in 2021. I guess it will also be a question for next year.

Both domestically and internationally, I think provincial bonds, the credit and how it’s viewed, has been very well received. GUILLAUME PICHARD

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Mike Manning: With the domestic market we’ve had two different types of markets, first a disorderly market in March/ April, where it was more private placement driven with carve outs and much wider spreads. Since the provincial bond purchase program started, things have stabilized with more regular access with narrower spreads. When we run our domestic borrowing program, we try to match our borrowing to investor demand. We’ve issued $26.9 billion in domestic syndicated issues, and that compares against $26.65 billion for all of last year. We’ve done 26 deals so far versus 31 for last year. What I want to note is that although the access has been good, the maturity structure has been slightly different. This year we have a 13.6 years average term, and that compares to 19.1 years last year, so we have seen a bit of a difference in the term structure of the demand that we’ve seen from investors in the domestic market.

This year we have a 13.6 years average term, and that compares to 19.1 years last year, so we have seen a bit of a difference in the (domestic market demand) term structure. MIKE MANNING

Alex Caridia: Anyone on the investing side, any comments on how they’ve found the domestic side to navigate as it tends to public sector issues this year?

Ryan Goulding: I think the existence of the Bank of Canada programs has been more impactful than the actual uptake of the programs. When those programs start getting used then you have a problem, when they are not used then they are simply sitting there, then they are fantastic. We certainly saw an improvement in liquidity when those programs came in, and we tried to access them a couple times with not much success. But I am keenly watching those, because when they start getting used, I would be very concerned, as that liquidity would start to deteriorate. Liquidity for us has been pretty good since the few weeks in March when it wasn’t. I think the right decision was to come in and provide that backstop, whether it is used or not.

I think the existence of the Bank of Canada programs has been more impactful than the actual uptake of the programs. When those programs start getting used then you have a problem, when they are not used then they are simply sittingthere, then they are fantastic. RYAN GOULDING

Dominic Sicilano: I would echo what Ryan said. I think the impact and moral suasion of the bank can’t be undermined, especially on a global perspective. You give people confidence, because if you do it elsewhere on the planet, and not in Canada, there could be some form of risk arbitrage or we might be seen in a position of weakness. The fact that the bank has stepped in morally to do that has had a huge impact on psyche and the ability of dealers to step in and price. Ultimately it was difficult but less chaotic in my mind then 2008 or 2010 because then we had the same type of situation we were worried about our counterparties failing and if we would ever get our money back or would the trade settle. That was not necessarily the issue here, it was purely getting bids. Our clients, our pensioners, and asset allocation clients were also very patient with us, which was the experience in 2008 and they gave us time to work to raise the cash if they were doing an asset allocation out of bonds into stocks and other stuff, that aspect for us really helped overall during those couple weeks. Since then the liquidity has been very good, the dealer community and issuers have been doing a good job giving the context.

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AGGREGATE PUBLIC SECTOR TOTAL ISSUANCE Abid Dobani: A major difference for domestic funding between the covid-19 and 2008 crises was Debt Capital Markets groups

281.6 were quick to partner with both investors 5.7 250 Aggregate public sector issuance in 2020 totaled 7.0 and issuers to ensure timely and successful ~C$261.5 billion, 56% higher than the 2019 total 46.0 new issue origination. These frequent, large

200 deals accomplished two goals: liquidity

187.2 and a trade point for the market to reprice. 168.2 5.5 53.0 158.4 4.9 154.2 5.2 5.2 7.2 Combine these successful deals with the 150 1.0 0.5 5.5 29.1 25.1 24.5 27.9 Bank of Canada liquidity programs, and it’s no surprise domestic Canada was able 100 40.0 40.0 39.8 40.0 to reprice back to pre-crisis spread levels 149.8 quickly. 50 85.5 83.9 80.8 85.4 Issuance Volume (C$ billions) Issuance Volume Alex Caridia: Thanks Abid. When we 0 2016 2017 2018 2019 2020 think about liquidity most of us think Source: RBC Capital Markets about liquidity on the bid size (can I sell my position), but last year you made an interesting point that it would be very hard to find high quality assets and a lot of that has held true. That’s very much what we’ve seen, do you have any sort of comments on liquidity on the offered side and what you think for next year?

Abid Dobani: When I reflect on 2020, I consider: fiscal policy and monetary policy stimulus, delayed tax payments, delayed capital expenditures, and de-risking from the retail segment. We came into this crisis with banks having strong capital and liquid ratios compared to 2008. Combine liquid commercial banks alongside the huge injection of central bank liquidity, and now the market has more than it knows what to do with in the short term; what do commercial banks do with this cash when the market is at the effective lower bound? A good proxy is the Bank of Canada’s large value transfer system (LVTS). From 2009 to right up until the beginning of COVID you had an average daily balance of roughly $300 million; since March we are averaging roughly $300 billion. Thus it’s not surprising that with all this cash, banks have been pushing organic loan growth with record low mortgage rates. Even in the face of great mortgage origination, banks still are long cash and thus turn to high quality provincial assets to utilize some of this cash.

It’s not surprising that with all this cash, banks have been pushing organic loan growth with record low mortgage rates. Even in the face of great mortgage origination, banks still are long cash and thus turn to high quality provincial assets to utilize some of this cash. ABID DOBANI

When you combine this structural purchasing requirement from commercial banks alongside the Bank of Canada liquidity programs it is not surprising to see spreads for high quality liquid assets (like provincials and CMBs) through the pre-crisis tights in spread. As central bank stimulus will be present through 2021, it’s hard to see any meaningful back up in spreads as the fundamentals of the sector will continue to be appreciated by portfolio managers. I reiterate my comment from last year: focus on asset allocation as we are at the effective lower bound in rates, negative real yields, tightening credit spread, and equity markets making consistent new highs. If there is a proper flight to quality out of equities and into fixed income, just imagine how low credit yields could go … all while inflation starts to rear its head.

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Alex Caridia: Thanks Abid. Let’s bring some of the issuers back into the discussion. Mike mentioned the lower duration in Ontario’s overall issuance this year, but we have seen the flip side from a couple of the provinces on this call. Alberta and Manitoba both issued century bonds successfully in 2020, would either of you care to comment on the issuance of 100-year maturities?

Don Delisle: It was a relatively easy decision on our part, we do all the borrowing on behalf of Manitoba Hydro. If you were to take a look at the hydro dams they are currently building, the useful life of those hydro dams is somewhere between 70-100 years in duration. When we reached out to Hydro they were very comfortable in taking on that debt. So that was the rationale for us going ahead with those issues.

Stephen Thompson: The 100-year issue was an investor driven trade. The rates from our perspective were fairly attractive. Not too long ago in Alberta we had a 10-year maturity cap, so there has been an evolution in the program that has allowed us to extend duration and how much we have to borrow.

Alex Caridia: Dave, the CMB program printed a successful $4.25 billion10-year issue in November, which is historically on the higher end of the issuance size for the 10-year term. Do you have any comment on maturity allocation on the funding side or anything else that has changed for CMHC in 2020?

Dave Ayre: Yes, this year as a response to the crisis we added a 3-year, that was a temporary move, and we did $6 billion in May and $3 billion in August. We have signaled we aren’t doing anymore of that unless it is needed as a crisis measure going forward. To your point on the 10-years, we have increased our 10-year size fairly significantly this year, historically we were probably $2.2 to $2.3 billion sizes on those, and they’ve been up around $4 billion this year. This is something we were looking to do pre-Covid anyway, so it looks like it was related to Covid, but it actually was something that was already in the works. It goes to a broader policy mandate of CMHC, where we are trying to help with supply of funding in the multi-family affordable housing space, and the 10-year plays an important role in that. The funding options do tend to be a bit limited outside of CMB, so we are looking to leverage CMB which we have this year. Starting in January there will be a new allocation methodology in place, which is a great role for CMHC and will help prioritize funding for lenders that are providing affordable financing.

Alex Caridia: Thanks Dave. From the Saskatchewan side, Rod, how have you found the year in terms of getting your funding program completed?

Rod Balkwill: It’s been a different year, and like Mike’s team in Ontario we have issued further down the curve. Traditionally we have been active in 10s and longs, as the Province hasn’t typically been running many deficits and so generally its long-lived assets we have been funding. A combination of higher investor demand and also a steep credit curve in the early days tended to focus our attention on the front-end of the curve. Obviously it was far more receptive, just to your comments about the bank treasuries, I think that investor played a larger role in provincial term new issue markets market which drew us down the curve. So rather than lifecos, pension plans, and investment managers being the major players, the treasuries came in as a large buyer. They were there for $50-$100 million of a deal, to make sure they put all that liquidity they had to work. The average term of our annual borrowing dropped from close to 20 years to below 10.

Alex Caridia: Thanks, and Charles on your side, any comment on funding?

Charles Allain: It has been a pretty good year, we have done $1.7 billion so far this year and that’s the biggest borrowing program since I’ve been here, which isn’t that long, only four years. Nevertheless, it has been good, and we have another $800 million to do. One comment I would make is that getting a long deal done is more challenging, but it makes sense as yields are down where they are, maybe a bit less interest in it generally and the risk in the long-end is a bit more heightened these days. So it is definitely more challenging to get a long-deal done, but we can’t complain as our recent deal was well received and we did some 3s and 5s in the spring and some 10 years later in the spring.

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Getting a long deal done is more challenging, but it makes sense as yields are down where they are, maybe a bit less interest in it generally and the risk in the long-end is a bit more heightened these days. CHARLES ALLAIN

Alex Caridia: Thanks Charles. I want to circle back to the purchase programs and get a perspective on how ready the Bank of Canada would be to re-instate those if needed. Given some of the comments here around being harder to get long deals done, how ready would the Bank be to extend the duration on those purchase programs?

Nicolas Moreau: As overall financial market conditions continue to improve in Canada, the use in several of the Bank of Canada’s programs that support the functioning of key financial markets has declined significantly. Therefore, the Bank has started to discontinue some programs, such as the Bankers’ Acceptance Purchase Facility (BAPF) and Canada Mortgage Bond Purchase Program (CMBP), and to reduce the frequency of others, such as the Term Repo operations. That said, as reported in recent communication and reports by the Bank of Canada, the Bank of Canada continues to monitor market conditions and, if warranted, may further revise its programs, including making changes to the size and maturity tranches of the term repo operations. The Bank remains committed to providing liquidity as required to support the functioning of the Canadian financial system. Any discontinued facilities can be restarted if necessary.

Alex Caridia: Does anyone else want to comment on domestic funding from either on the investor or issuer side?

Dave Ayre: In terms of the CMB Purchase Program from the Bank of Canada, we found that hugely helpful. I think it came at the right time in March when things were volatile, CMB being a fairly big chunk of the market, it brought a lot of confidence to the markets and settled large spreads down. In the end it was only about 3% of CMB was purchased through it, but overall it had a very positive effect on our program and funding markets as a whole. The feedback we heard from investors was great and very well received, and I think great messaging when they did shut it down last month that they said they stand ready to restart these programs if they deem necessary, very positive from my point of view.

INTERNATIONAL MARKETS

Alex Caridia: Thanks Dave. Similar to the domestic markets, the international issuance side has been very positive for Canadian public sector issuers including record breaking deals in a number of different currencies. This is a good time to bring Jigme into the discussion to comment on the international markets before moving into the issuer specific questions.

Jigme Shingsar: Sure, it’s been a banner year in the international markets, generally speaking, for the Canadians as well. Much like Kevin’s comment with regards to the domestic market, it has been very impressive how well global SSA markets have absorbed additional supply – for the most part spreads have posted an impressive performance despite the huge uptick in supply. If anything Canadian issuance in the international markets has not kept pace with the broader increase in overall SSA supply so there is an argument to be made that there is, in fact, significant untapped potential or capacity for Canadian issuers outside the domestic market. This is great because we are still heading into uncertain times, and it’s always great to have alternative sources of liquidity and diversification for this issuer base. There’s no question that we have seen better funding market conditions than anyone would have expected in the face of increased borrowing requirements, particularly given all the challenges around liquidity in the early stages of the Covid crisis. Sustained low

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yields and tight spreads are an opportunity for Canadian issuers as they offer the combination of name recognition and relative value that investor are seeking. So to summarize, a very strong year in international markets, and lots of capacity for Canadian names and very optimistic that this will continue.

Alex Caridia: Thanks Jigme. Chad, perhaps this is a good time for you to jump in, given EDC’s funding program is almost entirely offshore. How have you found access to markets on the international side in 2020?

Chad Buffel: Our program is predominantly focused on the international side, we were well received in terms of the investment products we were offering right up to year end. Looking at the Euro benchmark, Sterling, and US dollars, in each of those markets we were able to tighten in pricing and keep ourselves relative to our peer group. Subsequent to that when we were faced with the crisis, it was a bit tougher, like everyone was saying. Despite this we were able, on the short-end, to find product, which was a bit more expensive. In this environment we saw some of our larger peers (like the World Bank) coming in and establishing new benchmarks and levels. As the summer went into fall, we saw levels tightening in. Subsequent issues from many of you as well, helped give people a lot of confidence in the kinds of issuers that were out there like us.

The Canada brand certainly has a lot of cachet in the markets and leveraging that helps. Stability around how our country and financing are perceived gives the international community a lot more confidence as well. CHAD BUFFEL

The Canada brand certainly has a lot of cache in the markets and leveraging that helps. Stability around how our country and financing are perceived gives the international community a lot more confidence as well. So, I think there’s a lot of benefit we came into the markets with, certainly after Covid, and we have been building on that and showing the value that Canada provides. I don’t see that changing, I think there will be more capacity going into next year. Having more players helps the overall brand, and it’s good to see several you are involved across currencies, in Euros, US dollars, and sterling. It’s good to see the brand is doing what it can and it’s bringing awareness for all parts of it.

We unfortunately did not get involved on the public side post-Covid. Since the pandemic, all that we have issued is on the private side, and that will change into next year. We have been successful managing with privates, but we would still like get back into the public side. The panelists here have been keeping that banner growing, so kudos to the whole Canada program, if you think of us as one big happy family, if that’s what you want to call it.

Alex Caridia: Renaud, do you have any comments on your plans to look outside of Canada?

Renaud De Jaham: I was impressed to see the numbers and the size of issuance that we saw in the pension markets in general, SSA’s and Canadian SSA’s. At the beginning of the crisis, in March, April, May, June, we stayed on the sidelines, and we took advantage of the good reception in the Canadian market to do a great transaction in August. Having said that, it is in the plans for us to also go global, and our base case is to launch a global program for 2021. We will certainly have the capacity of issuing once and even twice in 2021, in the US market, so that will be the base case. Our plan to establish a curve will take certainly two to three years. This is why it is unlikely that we come to the Euro markets, but definitely we will monitor that market, and if there is an opportunity down the road in 2022 maybe, we could eventually start issuing in this market. But one thing that is important in the way we manage the borrowing program, I think we’ve established good credibility in Canada. We’ve been a more frequent issuer in the domestic market, so there is no way we will abandon the Canadian market. We want to ensure that everywhere we issue debt we will establish sustainable programs, and this is also the case for Canada. Because we are going to start issuing in the US market, it doesn’t mean we will abandon the Canadian market.

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We want to ensure that everywhere we issue debt we will establish sustainable programs, and this is also the case for Canada. RENAUD DE JAHAM

Alex Caridia: I’m sure that will be music to the ears of all the investors on this call. Mike, you have been successful in printing a Euro trade in November, could you walk us through that trade and your off-shore issuance activity in general this year?

Mike Manning: For sure. Maybe I’ll start with where we are in term of international borrowing. We have issued about 11.3 billion in international markets, that’s about 23.9% of our program at this stage, and that’s roughly in line with our expectations, as we targeted roughly 20-30% in international borrowing for this year. The surprising thing for us is that normally it’s predominately US dollars and some Euros and some others, but this year the Euro component is much bigger, about 7.2 billion so far, with the US component around 4.1 billion. We followed the recent Quebec Euro transaction, and hats off to them for a successful deal, and we thought that there would be follow up demand for us. We were quite surprised that the demand was bigger than what we anticipated. To be honest we were thinking if we could do EUR1.5 billion we would be very happy, but our book went up to EUR4.3 billion and we ended up printing EUR2.5 billion. It was a 10-year issue and we had over 130 investors, so we were very satisfied. I would say that Canadian provinces may be in the sweet spot for Euros as they offer high credit quality, good yield pickup, and with that yield pickup they get closer to having positive interest rates, thus being attractive to investors overall.

Canadian provinces may be in the sweet spot for Euros as they offer high credit quality, good yield pickup, and with that yield pickup they get closer to having positive interest rates, thus being attractive to investors overall. MIKE MANNING

Alex Caridia: Thanks Mike I think that’s a very good point. Opening it up to the other provinces, either that already issue in Europe like Steve, on the Alberta side, or that may have plans to issue in Europe or other markets.

Stephen Thompson: I agree with Mike on Canadian provinces in EUR, and from Alberta’s perspective the international public markets are a core part of the funding program. Given this is our largest program ever, we are actually a little behind where we would like to be in terms of having access to both dollars and Euros for various timing and logistical reasons. We do expect to be active in the next few months there, but we’re in blackout right now given our budget is coming out in a few weeks. It’s been interesting to see just how familiar the investors have become in Europe particularly to the credit, as you know we started our first Euro issue we spent a great deal of time explaining to people what exactly a Canadian province was and now we are talking about fiscal frameworks and transfers. So for us as long as our program remains of any significant size, we will look to do at least 30% offshore, and more and more is coming out of Europe. So we will be active and international issuance will remain a core part of the program for a long time.

Alex Caridia: Thanks Steve, appreciate that, and to any of the other provincials who want to comment on activity potential or new markets you might want to open up?

Guillaume Pichard: I will comment on some of Mike’s comment here and earlier Alex, you alluded to negative rates. I want to highlight something interesting that we did do a Euro in 2019 at negative rates. We saw some pushback from some investors, and they told us that it won’t be bought because it’s too close and they aren’t putting any orders

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in the book. If you go forward a year in 2020, we issued a bond with a yield of -0.02%, no investors backed off, the investors that signaled that they wouldn’t buy a negative yield came in the book, and so it’s really two-folds from a year ago from now with regards to negative yields. Just want to put that out there.

Jigme Shingsar: One comment with regards to international demand for Canadian issuers in a much larger and the more crowded market. I think this speaks to the importance of continuing to maintain direct and regular dialogue with investors and the overall Investor Relations program. We have been fortunate this year that the domestic market has been so robust for Canadian issuers and the reliance on offshore markets has not increased as much as some might have expected. But I still believe that it is important for Canadian issuers to collectively help maintain the incremental value of the Canada brand with continued investor outreach. I think the very successful Canadian international transactions we have seen this year are a testament to the investment our issuers have made in Investor Relations.

I think the very successful Canadian international transactions we have seen this year are a testament to the investment our issuers have made in Investor Relations. JIGME SHINGSAR

Dominic Sicilano: If I could just add something else on the client side, which is really interesting is that I haven’t experienced this during the last 10-15 years at Addenda, but since June I’ve had a lot of contact from US potential clients that want to divest away from the US dollar with its devaluation, and the political instability, the geopolitical turmoil, Turkey Russia, and they are looking at Canada as a bit of a safe heaven, and it’s not for returns but more of a currency diversification story. So I thought that was interesting, and we have made a couple of pitches to those clients as well, and that should help support them as they market those clients to come on board.

Alex Caridia: I think that is a great point, because when we talk about Canada in the international markets we have talked about government issuers issuing in Dollars and Euros. The other side of that coin is international investors coming into our market, as we have seen a huge increase for demand of high quality Canadian dollar denominated assets, out of Asia in particular, but also out of US and other regions. I’m wondering from an investor perspective, perhaps Ryan or Abid do you have a comment on this. Do you see international investors coming into this market as a good thing? In terms of providing more liquidity and exit points for the dealer community, or do you see it more of as a crowding out, and more of a bad thing?

Abid Dobani: From our perspective, Canada is a relatively small market, and there is more than enough demand between asset managers, pensions, insurers, and commercial banks for provincial debt. As soon as we have international asset managers involved in our market, less product is available for those with organic needs. We of course welcome our global asset management community into the Canadian debt market as diversification (for both purchaser and issuer) is a positive thing, but I worry about the valuation of credit spread versus what fundamentals dictate they should be. We keep our eye on the space, but the market is what the market is and we will just have to adapt accordingly.

Ryan Goulding: You know when I look at the credit metrics and what spreads may do for any of the issuers, the way by which you guys manage your programs is a huge fundamental input. It’s not just the economics of each province, it’s how you manage it. Steve mentioned earlier how the sophistication of his program has increased since he has been there, and I would totally agree. The ability to access these markets is imperative to your spread levels, and having these international dollars in Canada is very important, but it does introduce a very big impact and risk, I commented on this last year that these international flows tend to be large for Canada, which is small market, and indiscriminate. When they decide they don’t need Canadian dollars anymore, they won’t care what the spread is. That potential is always at the back of our mind, and we are very cautious about what specific issues we own and where we are on the curve and try to find the extent in which those are owned by international, and maybe shy away from that a little bit. This is because that liquidity gap or air pocket is a big one if it happens.

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Alex Caridia: Don, moving on to Manitoba’s international funding, we have seen some of the transactions done this year being long-dated. 20-30+ year EUR private placements – do you have any comment on these deals?

Don Delisle: So we’re a bit different than some of the other bigger provinces because of our borrowing program. Our intentions earlier this year, around March, April, and the spring, was to go to the US market, because that is market we like to go to once a year anyways just given the size of our borrowing program. And then of course we had that fire drill and we ended up with so much domestic issuance that we just don’t have the capacity right now for a benchmark USD issue, so we will look in the new fiscal year to try and get back to that market. However we will take advantage of borrowing opportunities in just about any currency. Our borrowing program this year will be about $8 billion, including pre-funding. Compared to the likes of Alberta, Ontario, and Quebec, it is pretty small. We will take advantage of international opportunities as long as it’s cost competitive with domestic levels. We will continue to monitor all of those markets, we have an EMTN program, we have a formal Australian dollar program, and so we will continue to take advantage whenever we have the opportunity.

Alex Caridia: Thanks Don. Nic, we haven’t seen a Canada USD denominated deal in the market for quite some time, any views on the likelihood of a transaction in the next little while?

Nicolas Moreau: Thanks Alex. The Government of Canada has been active in the international markets over the last three years and our objective remains to be active in this sector at least one a year. Therefore, you can expect that the Government of Canada is planning to issue a US deal before the end of this fiscal year.

Alex Caridia: Thanks Nic. Would anyone else care to comment on international issuance?

Rod Balkwill: We re-entered international markets this year with a private euro deal– the first time since 2006. We started the work for this 18 months ago, as we think it’s important to go the US and overseas markets and see what else is there. We would be a smaller player – but so far our experience is that there is interest from international investors especially given the Province’s higher credit rating. We will continue to opportunistically issue internationally when funding costs are beneficial compared to domestic levels.

We will continue to opportunistically issue internationally when funding costs are beneficial compared to domestic levels. ROD BALKWILL

GREEN BONDS AND ESG

Alex Caridia: Thanks Rod, appreciate it and look forward to it. Nic, just moving over to ESG and setting the scene at the federal level, we have seen a lot of sovereigns look at the ESG market and green bonds. We have seen the dual-bond approach from Germany, and a couple of weeks ago the UK announced a green Gilt potentially for 2021. Do you have any thoughts you can share around what’s happening in Canada on that side?

Nicolas Moreau: The Department is cuttently working to assess whether a federal green bond would be beneficial to Canada in the context of the Government’s debt management strategy and its climate policy objectives. As part of out Debt Management Strategy consultations the Federal government has surveyed market participants on potential Government of Canada green bond issuances. A federal green bond may help demonstrate the Government’s commitment to the environment and leadership role in supporting green financing and making progress on environmental challenges.

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Alex Caridia: Thank you. This has certainly been a growing theme. Perhaps this is a good point to get an update from Province of Alberta on the prospect of ESG issuance.

Steve Thompson: There’s a couple of things, fundamentally, the whole ESG space has become more well-defined but it’s also become broader. It’s not this narrow green bond focus, so the space has expanded to include transition and sustainability. When you talk about a country talking about being carbon neutral or net zero by 2050, and you are a large oil producer, you really can’t have that conversation without including your large oil producing region. Is the ESG space now accommodative to being meaningful and not disingenuous in terms of transition, in terms of moving on to natural gas and on to renewables? Is there a space for sustainability? Absolutely. I think that is where the most productive conversations will happen, and I think ultimately that will result in our inclusion in some kind of funding program, around sustainability or transition. I think the conversation on the actual program processes have to happen first so I don’t think we’re going to lead the way by the finance department taking over the ESG conversation for Alberta but we will be front and center. So no, I’m not changing what I said about me looking at green bonds as an arbitrage opportunity, an opportunity to access either a different investor base or a lower cost of funds or a different risk profile. Those will be my primary focus points once we get to that space. But I do think the sustainability platform itself has evolved to a point where it’s not disingenuous for a large oil producer to be part of the conversation.

When you talk about a country talking about being carbon neutral or net zero by 2050, and you are a large oil producer, you really can’t have that conversation without including your large oil producing region. STEPHEN THOMPSON

Alex Caridia: Thank you Steve, I think you will see a lot more ESG issuers move to social and sustainable and away from a pure climate theme, and on that point Dave, Bloomberg just published an article before this call talking about social housing bond issuance from CMHC. It was certainly well timed, any comment on that?

Dave Ayre: CMHC is working on a potential sustainability framework for our securitization programs (CMB and NHA MBS) with industry partners. CMHC has obviously been pretty explicit in our corporate objective to promote housing affordability with an aggressive target that by 2030 everyone in Canada has a home they can afford that meets their needs so the reality is that any ESG issuance on a CMHC sponsored program that we get into, conceivably would include affordability linked mortgages to help with this objective. I think there would be good value and it does seem to be something we are consistently hearing from investors as something that there would be a lot of demand for.

Alex Caridia: Thanks Dave. Moving on to the investor views on this before going to Mike and Guillaume, who have been trailblazers in this space in Canada. Dom on your side you have been extremely active on the green bond side, and I was wondering if you have any comments on how that portfolio is shaped over the course of the year? And perhaps you could comment on the broadening to ESG, social, or sustainable issues as well?

Dominic Sicilano: I get more calls for my green bonds than any other bonds in my portfolio from the dealer community, so they are always showing me switches from those things, and I tell them that I can switch from one green to another because they are hard to come by. So Ontario, and Quebec in those trades for sure. We are really focused on ESG, and I think that our clients are really moving away from fossil free, which was a theme we heard for a long time which was adamant. Now customers are really talking more towards transition and towards ESG bonds, and I don’t have a pitch with clients where ESG is not a focus of the pitch. Clients will say you know we are moving towards that or we have to take this into consideration if we buy fixed income.

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We are really focused on ESG, and I think that our clients are really moving away from fossil free, which was a theme we heard for a long time which was adamant. DOMINIC SICILANO

I think there is a spot for Alberta at the table for sure, in this transition and social environment, Canada does a lot of good things socially and it’s not always about just green and oil. There’s a lot of things that can be done and the most important thing we find for us is the reporting as well. I know it’s slightly tedious and boring, but for the Province and Quebec and Ontario, and some of these municipalities do a great job of providing us with concrete evidence of reporting. It is a lot of work for them to do that, but that has paid dividends because there is a really huge trust factor from the investor community relative to those projects being real. That’s an extra layer of effort that has to be done by the issuer for sure, but that is something extremely beneficial. I don’t think this is going to go away, this isn’t the 1997 water bonds and stuff like that, but a continued trend and the younger investors are making it a requirement. The more education, because moving away from this idea of no more fossils, people are realizing that it’s not the right approach if you want to make sustainable change.

Alex Caridia: Thanks Dominic. With those comments in mind, Ryan, any views on ESG in your respective portfolios?

Ryan Goulding: We don’t have any ESG specific fund at all but similar to what Dominic was mentioning, we have a few custom mandates that are largely exclusion based mandates, so kind of the dip your toe in the water, ESG easier style. But where we are getting more interest is from our private client high net-worth business, whereby we are getting demand from, not the exclusion, but more transition social impact type of bonds. So up that ESG aggressiveness scale, and those are the ones that are a little bit surprising to us, we thought it might be the foundations, university’s etc. But no these are family offices and high net-worth individuals who are saying we would like to put x amount into it. it is up to us to work with them because quite often it is a very bespoke mandate as you have to write what they want to do, and really guide them to what’s practical, and how this market is evolving. I think that we will see much more interest in our private clients, and that’s going to ramp up for us probably quicker than our institutional side.

Alex Caridia: Thanks Ryan. Mike you and Guillaume are the trailblazers in Canada, and certainly with Ontario’s first green bond issue many years ago. Do you have any comments on how that program has evolved and perhaps looking outside of Canada as well?

Mike Manning: We are sticking with our same approach on ESG; we started issuing green bonds in 2014 and it’s been an important program for us. We’ve recently issued our 8th and largest green bond in October, and it went quite well. We are seeing good demand and I think demand has been increasing. We are getting SRI type funds and investors, but we are also seeing more interest from the pension plans and you can layer on top of that demand from Universities and foundations as well. I think that’s going to continue in the future, demand is going to be good, and we are somewhat fortunate that we have a good pipeline of green projects. Some of the other provinces don’t have that as they are somewhat smaller and don’t have the projects to draw on, so we do have that flexibility. We probably will look to do another green bond, possibly in January. We have the project supply to support another issue. In terms of international green bonds, we have been talking about that now for a couple of years and more so over the past year. We have found the demand in Canada has been really strong, and the cost effectiveness is a little bit better, but there might be an opportunity somewhere along the line, especially in Euros. Europe does have a lot of green focused investors, so it might make sense for us to focus on that. We have been broadening our categories of projects as we were initially focused on green transportation, but have moved into the energy efficiency and conservation, and climate adaptation and resilience categories as well. I think Green Bonds will remain a fundamental part of the program, not a huge part of the program, but still an important component of the overall program.

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Alex Caridia: Thanks Mike, we look forward to seeing that and I think you are absolutely right, if we look at some of the recent Euro transactions, we saw Ontario Teacher’s do a very strong Euro green bond, and certainly the number of investors and the questions they have are incredibly detailed. I think you are right there is an opportunity there. Guillaume perhaps you want to comment on your side?

Guillaume Pichard: Yes a lot of what Mike said is also true for a lot of our program. We started a few years later than Ontario, but we have issued 5 green bonds for CAD$2.8 billion so far. Where we are in our program right now is we are trying to broaden the scope of projects we want to fund with green bonds. We started with public transit, we had some large projects like new cars for the Montreal Metro. In our last green bond, we have introduced an energy efficiency category to green building and LEED buildings, as we are trying to keep the growth there and diversify projects. Internally we are also looking if we can improve some projects to make them qualify for the high standards that a green bond warrants. So that is key, and regarding demand I think Mike was spot on, the demand in Canada is really high as it is globally. For a while I think demand will outweigh the supply, and it’s almost by design because at the end of the day it’s hard to do green bonds, you need those projects and need to consider that you need to do the paperwork as Dominic said, which has to be done very professionally. You cannot issue green bonds and figure out after what you want to do with the money, you have to have a plan. So that’s where I say by design we won’t bring enough supply and the demand is still going to be there because it’s hard to meet that demand.

Alex Caridia: Thanks very much Guillaume. Renaud on your side, you have been very active domestically but wondering if you have thoughts or comments on potentially looking at a green or ESG issue?

Renaud De Jaham: I would say that pressure comes from everywhere with regards to ESG matters, you can’t have a conversation with dealers without talking about green bonds. It’s exactly the same with investors, and even investors who invest in conventional bonds, some of them have ESG scoring in order to assess what you do with ESG matters and whether or not they are willing to support you in your debt programs. I think that those are conversations that you can’t avoid now. You also see that green bonds outstanding are over a trillion or so, thus this is something that you can’t avoid. We are going to have the conversation internally so definitely we have to have a plan for next year whether or not this is something of interest for PSP. But as a crown organization, the executive management is always saying that ESG matters are increasingly important and from the investment side we are looking more and more at projects that are ESG responsible. On the issuance side we will definitely have to make a call on this and come up eventually with a green bond framework. So I will have a clearer answer for you next year.

Alex Caridia (RBC): Thank you, I look forward to that. Chad I know you have been active with green bonds in dollars, but also you have issued in Canada in the past. Wondering if you can update the group on any future green bond plans or also your plans in respect to the domestic market here.

Chad Buffel: We’ve been active in green bonds since 2014, mainly in the US dollar side. Going into 2021 we will be doing more work on the green space. We were absent this year and that was more because of the underlying situation gave us pause in the public markets. We certainly have an active portfolio; perhaps not as large as some of my colleagues here. For EDC the bigger challenge is making sure we have the right projects. We start from a very conservative perspective, where we make sure we have the asset portfolio lined up before approaching the market, so that the money raised is being deployed right away. We ensure that all the tracking and all the performance, whether it net returns on greenhouse gasses or replacements in terms of renewable energy we have more certainty when we issue.

We expect to overhaul our green bond framework in 2021 where we will look at it from a sustainable transition side. This will ensure that the framework platform will allow us to expand and look at several different projects that don’t fit the specific green criteria. We are also looking at how we can reduce the carbon intensity of our outstanding portfolio right now. So, putting targets and frameworks like that in place will enable us to support and/or show the support for a lot of things in Canada that may be in that transition and sustainable space.

We certainly will be looking at a US dollar transaction, it’s possible we may look domestically as well, it really depends on the size of our asset portfolio. We see capacity with our assets and depending on the completion time to get our framework in place that may also help to increase our ability to expand the portfolio. There certainly is no

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shortage of demand. When we were marketing our US dollar green product 5-6 years ago, I compare it to how you do the marketing now, the type of questions you get, the interest, and the demand really show the exponential growth. We have already seen green bond issuances eclipse last year total.

We expect to overhaul our green bond framework in 2021 where we will look at it from a sustainable transition side. CHAD BUFFEL

Part of the role we can play, as an early entrant in the green space is our participation on ICMA’s council for Green Bond Principles and Social Bond Principles, and our subsidiary, FinDev Canada, which focuses more on gender and social elements of sustainability. So, to the extent that we can get our new framework in place, some broader themes on socially sustainable activities at FinDev Canada can only increase our asset portfolio. I think the real issue for anybody else is making sure the projects can qualify and the framework in place can support the management and monitoring of the criteria. When we put out our annual green impact report we see the evolution for increased granularity on the projects and their outcome. We want to make sure we address investor’s needs for that so it’s about putting the right mechanisms in place to have confidence going forward. We are looking forward to this coming year and perhaps dipping our toes in one of the newer types of sustainable bonds.

Alex Caridia: Thanks Chad. My final ESG question is to the three provinces that I haven’t asked so far. Don, Rod, or Charles, any plans on your side to issue green or ESG, or any views on the topic?

Don Delisle: It’s something that we would be interested in, but it goes back to a couple comments that both Guillaume and Mike made is identifying projects. That is a real issue for us, to be able to identify projects that we could put into a sustainable program that is going to take a lot of resources to put together and do it properly. Both Quebec and Ontario, are the gold standard in that, and I think that it would be prudent for us if we were to go ahead with that and do exactly the same, but it’s difficult to find the projects.

Charles Allain: I would echo what Don said, in Nova Scotia, we have very little in the way of green that we could issue today. Most of our commercial real estate is privately owned, very little of that publically owned. One area that I do see maybe in the future is social bonds, and particularly, housing stocks for social housing, which could be an avenue for us in the future. We do have increasing rent, and the Halifax housing market has done well in the last couple of years and we have seen some pressure there for rent control so there may be some avenues in the future for social bonds and the housing market. Mass transit, we have been talking about for a few years but nothing on the horizon right now.

Rod Balkwill: I think it’s the same for Saskatchewan, it’s always been project issues, that has kept us out of Green bonds, aside from the fact that we are a somewhat carbon intensive economy with agriculture, mining, oil and gas, you know it’s cold and all those things, and the province has a large coal resource as well. But the province has committed to moving its public utility SaskPower out of coal by 2030, and is investigating carbon neutrality by 2050, so there are real things happening.

The changes to the ESG market surrounding transition funding is really encouraging, because I think there are things being done but they are hard to fit to the really strict guidelines that have traditionally been in place. We don’t have large transit projects, but some of the new investments that are coming up around agriculture and protein development, water management, imported hydro power and small modular reactors might fit the transition guidelines, so we expect there to be opportunities.

Alex Caridia: That concludes the roundtable discussion. On behalf of RBC, thank you very much to all the participants for joining.

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IS THERE MORE TURBULENCE AHEAD FOR SECONDARY MARKETS?

When the COVID crisis firmly took hold in March and April 2020, liquidity dried up. Now, just months later, as issuers pile onto the market and central banks buy up deals in QE programs, we’ve recovered to the pre-pandemic levels of liquidity in the SSA space. But the rollercoaster hasn’t stopped.

The sheer volume of central bank buying has squeezed everything, so the market is now seeing negative new issue concessions and struggling to find any value. Meanwhile, it’s in the middle of an RFR transition, there’s a new US president and, though the vaccines are on their way, the crisis isn’t over yet. There are risk factors next year, that inflation will rise or that the market will finally have to respond to the real economy if the end of stimulus packages sparks redundancies and bankruptcies.

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PARTICIPANTS:

Andy Gowans Gavin Dredge Director, SSA Trading Managing Director, Senior Portfolio Manager RBC Capital Markets RenaissanceRe

Isabel Wiggans Grigor Sargsyan Associate Director Principal Portfolio Manager Asset Portfolio Manager World Bank Treasury RBC Funding and Liquidity David Strock Treasury Standard Chartered Bank

Andy Gowans: How would you characterize liquidity through the most turbulent times of March and April this year? And to what extent do you think liquidity has recovered across the major currencies and secondary markets?

Grigor Sargsyan: One way I would probably characterize it as nonexistent in March and April. And it is fair to say that it applied not only to the SSA market but also, to a certain degree, treasuries, when trades of certain sizes were getting filled at wider bid-offer spreads. In the SSA world of triple-A and double-A issuers you could perhaps find a bid if you really needed liquidity. The question was, however, how far away from the fair value were you willing to do it.

Today, all that universe has fully recovered to the pre-pandemic levels of liquidity and valuation. As a matter of fact, for me, as an investor, it became harder to find pieces of paper on the offer side, especially in tier 2 names.

Gavin Dredge: I think March was among the worst liquidity conditions that I have ever seen in my 25 years in financial markets. Our philosophy was to try not take liquidity. Where screen bid offers are very, very wide, we tried to limit our actual activity, and ask ourselves whether it was essential or not.

We also emphasized strong communication with trading desks about what we were trying to do, often working on an order basis, rather than trying to force liquidity that wasn’t there. And when the new issue market picked up again, we really tried to embrace that, because when you have a functioning primary market, I think that tends to produce a positive feedback loop with the secondary market.

The market’s very functional at the moment. It’s clear that there’s a lot of demand and I think the fact that we’re continuing to see benchmark issuance into December really speaks to the idea that the street can’t replace inventory quick enough and that the technical demand is really firm.

I think March was among the worst liquidity conditions that I have ever seen in my 25 years in financial markets. GAVIN DREDGE

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Andy Gowans: David, from the perspective of a bank treasury or an ALM desk, do you have any insights there?

David Strock: Again, going back to March, April, liquidity was pretty horrific. It was a bit similar to what we saw back in 2012 in the Eurozone crisis to a certain extent. Preserving liquidity is key so we just tried to generate a bit of cash using the most liquid stuff, like treasuries. But we stayed away from the primary market for quite some time because of the liquidity concerns overall. And considering that we had one covered bond that was pulled by TD Bank and then there was one German agency as well where we had to pull a deal around that time, it was not exactly encouraging from a market-raised capital perspective, and that encouraged us to be even more cautious for quite some time.

But now, things are looking much better from a liquidity perspective. There’s always tiering, if you look at the Euro market, whether it’s SSA or covered bonds, or whether it’s the kind of tiering between the ECB-eligible space and then the rest of the world, and I don’t expect that to change any time soon, as I don’t expect ECB to expand their scope of investment, for obvious reasons. At the same time, I think the impact potentially might default valuation even more in the eligible space, compared to the rest. It could potentially create even more divergence between the ECB space and the rest.

In the last few months, there seems to be quite a strong engagement from investors in the SSA world, considering the gilt valuation and the spread verses gilt, which looks like a no-brainer, at least when we’re in the 30s, 40s spreads to gilts. Sterling has been a bit better in secondary, despite the lack of much primary action this year. So that’s another small positive.

Andy Gowans: Isabel, do you share the concerns that offer-sized liquidity is, in some respects, worse than it was before the crisis?

Isabel Wiggans: I would say very much so. It feels like dealers are a lot more reluctant to sell anything short. It’s pretty scrappy on the offer side right now, and I think that’s definitely led to a bit of a compression which, in my opinion, is a little bit far gone in the basis between tier 1A and tier 1B, tier 2 names. Particularly from an HQLA perspective, the LCR 1 and 2 delineation is almost nil, there’s very little in that these days. Some of that is just down to the scarcity on the offer side and that’s probably gone further than it would have if we were seeing the liquidity that we saw pre-crisis.

Andy Gowans: Does the predictability of issuers, intertwining with the primary markets as a key source of liquidity, support you in how you deploy your liquidity and make your investment decisions?

Isabel Wiggans: Absolutely. Everyone’s mentioned the strength of the primary markets in the spring and we’re continuing to see that through to this current week that we’re in – which is pretty unheard of for it to be going so well in December. Primary has been increasingly important for us but was more so in the first half of the recovery. We were pretty active early on, getting back into the market there, and it was good when that primary market came back – you had that provision of liquidity and it supported the secondary market. But as we’ve crept into the second half of the recovery, the sheer volume of central bank buying has squeezed everything in, so we’ve actually been seeing negative new issue concessions. It’s become a bit tougher to navigate as we’ve come to the back end of the year. As again, it does offer this decent provision of liquidity, and it takes a lot less work to get a block of paper in, but you may be paying a premium for that liquidity.

I think that it’s going to be interesting to see how that pans out once we get into January and everyone resets a little bit. I think some of that squeeze in the back half of the year has been because no-one is sure when the music’s going to stop, whether we’re going to stop getting more supply in, as is usually the case. And I’m quite curious to hear if anyone here has any thoughts about whether that will change in January? Or are we due for more of the same? Because that’s something that we’re certainly looking at.

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But as we’ve crept into the second half of the recovery, the sheer volume of central bank buying has squeezed everything in, so we’ve actually been seeing negative new issue concessions. ISABELLE WIGGANS

Andy Gowans: Grigor, do you have any thoughts on how primary acts as a visual liquidity point and perhaps how that change is going forward into January?

Grigor Sargsyan: Let me take a step back. The funding plans from the issuers definitely help us build a strategy throughout the year. What happens is that once there is a big support from the ECB – and generally whatever dynamics of the basis is – issuers divert their funding into Euro, rather than issuing in US Dollars. Which, if you are a sole US Dollar investor, brings upon scarcity issues. Unless you can buy in Euros and swap it into US Dollars, which we can do for a subset of funds under management, this creates major difficulties in terms of finding investments in non-US Treasury securities.

Another obstacle that comes forward once the issuer turns to non-USD funding, is that they choose to issue in longer tenors. Our natural habitat is within maturities of up to five years, and it becomes hard, if not impossible, to swap a 10-year paper for funds that have two or three year duration target.

I would finally add that the recent tightening in the new issue premiums in USD SSA paper comes from the fact that most of the issuance was taking place in non-US Dollar space for the past six or seven months. We are in record issuance volumes since 2016, and larger share of it is coming in Euro, rather than the US Dollars.

Andy Gowans: David, in the Sterling space, it’s been trickier without the same degree of primary supply that we’ve had this year. What is the offers side like in Sterling?

David Strock: It’s more a difference between the main issuers, like EIB, KFW, World Bank, and the rest of the crowd, to a certain extent. Sometimes I find that the constraining factor, in terms of secondary liquidity, is that a lot of the legacy deals are pretty small in size to start with. So the positive to me has been that we’ve seen trends towards larger deals since the end of last year, looking at World Bank and a few others.

But in the last few months, secondary has been a lot tougher just off paper, so that puts the onus on primary to source liquidity and size in the main names. Primary is really key for us. Across currencies, you’ve got the big issuers that are a lot more predictable and come to the market on a regular basis throughout the curve. But then for the smaller, rarer issuers, primary becomes even more important because if we want to be invested in the name, we have to be able to buy in large size in primary, otherwise it gets very difficult to source. Especially if the small issuers print US$1-billion size deals then it gets pretty tricky to source paper in secondary if you don’t get a good allocation in primary.

I think primary is going to be more and more important. Some names in the Euro market are going to have a very big footprint next year, which will help them deliver sourcing paper. But otherwise, on smaller names, it’s going to remain tricky liquidity-wise. At the start of the year, it should be slightly better between the primary supplies stepping up and potentially a bit more rotation in inventory on the back of that, which hopefully will bring a bit more paper in secondary. But I think the race is on to be on the first rush of supplies in Q1 or then we get back to the current situation where everything gets squeezed and pretty difficult to source.

Andy Gowans: We’ve had a vast increase in government and other public sector borrowing this year as a result of COVID-19, but against that we’ve had an enormous increase in central bank support: between those two dynamics, how does that affect your investment decisions going forward?

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Gavin Dredge: In making investment decisions, we look at technicals, fundamentals and valuations as inputs to decisions. The technicals created by central bank buying provide a tremendous backstop or a tailwind to spreads, but I think while that’s been supportive to date, with valuations where they are now, I think you have to be looking more closely at the valuation lens. When we begin to see negative new issue premiums, which I think we’re seeing at the moment, that probably gives us a bit more pause, in terms of potentially putting new money to work into the new issue market.

Isabel Wiggans: At these levels and without any kind of premiums being paid on new issuance, it does make it a little bit harder to put new cash to work. But it does create a backstop having that QE support, especially in secondary. I think it just changes how we have to look for value. And there are various ways that we’ve been dealing with that. One is your bog standard, you push further out the credit spectrum, maybe looking at extending or look more keenly for RV opportunities. I think it also changes the outlook on hedging strategies, which coincides nicely with where we are, in the middle of an RFR transition period, so that’s been a point of emphasis for us anyways. But it has shifted us to think about what the dynamics are there and when we want to be trading verses OIS/SOFR or versus LIBOR. It pushes you to be a little bit more creative, in that regard, because it is a wall of cash that is driving valuations in one direction and how do you move within that? It’s a very different problem than we’ve had in the past. We are looking at similar spreads to what we had last year but in a very different environment. It’s the elephant in the room, all of that central bank cash coming in.

But we do also have this increase in supply, so that comes with its own opportunities. I think issuers are also looking to be more creative about how they get their liquidity. We’ve definitely seen an increase in off screen taps and different modes of funding. So, as investors, we have to be well attuned to that.

Andy Gowans: It’s been touched on a little bit but to what extent do you think investors are getting forced out, either the yield curve or across the credit spectrum, in the hunt for additional returns?

Grigor Sargsyan: Right after the March/April period, we enjoyed a steep credit curve. We did adjust our strategy to go a little bit longer in duration from our regular two to three years tenors to three to five years, since the massive support from the central banks around the world was clearly going to push the credit curve flatter. And now, fast forward to December, what we see is almost a flat credit curve between two and five years, which leaves us scratching our heads as to what are we going to do next year.

If you were in shorter durations, you could potentially enhance returns by moving a little bit farther out the curve as major treasury curves remain steep. Another opportunity could be to diversify the operational base to be able to do cross-currency investments, even the most basic ones in the very front end, such as covered forward swaps.

One asset class in the high-grade space that we still think has some value compared to SSA is covered bonds. Unfortunately, not many accounts can invest in covered bonds, but we’re seeing more and more interest from the fund owners to learn about this asset class to see if it can fit into their risk appetite.

I think the issuers are also scratching their heads as to how they are going to move forward and if the music of elevated demand will stop at some point. We were lucky to be able to work with issuers on private placements and get some new issue premiums there. One should fully realize that by getting into private placement bonds you are actually “shorting the liquidity”. But if you can structure something in the very front end and your investment horizon is not less than two to three years, maybe there is something you can do in certain currencies that works for both the issuer and the investor.

The EM world is a little bit different. Not many investors can go there, especially for their liquidity portfolios. For certain funds we take advantage of investing into local currency high grade emerging market government bonds and swap them back into US Dollar. Obviously, one cannot invest the entire portfolio in these markets, but it could help with risk diversification while enhancing returns.

Unfortunately, in high grade fixed income space there isn’t much left, and you just have to accept that returns next year are going to be somewhat lower, and maybe one should look at cutting the spread duration and re-enter at the times when the credit curve is steep again.

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We did adjust our strategy to go a little bit longer in duration from our regular two to three years tenors to three to five years, since the massive support from the central banks around the world was clearly going to push the credit curve flatter. And now, fast forward to December, what we see is almost a flat credit curve between two and five years, which leaves us scratching our heads as to what are we going to do next year. GRIGOR SARGSYAN

Andy Gowans: Are there any segments of the market that you think offer value?

David Strock: That’s a tricky question. The only thing in the dollar space I’d say is probably the 7-year sector on relative value, which I think offers decent pickup compared to the 5-year sector and probably nearly flat to 10-year sector. But it’s not easy to extend in duration because of limit constraints, so it’s not like we can shift a ton of asset allocation into 7 years. But there’s a bit of value on the curve there. Euro honestly, I can’t really mention anything, outside of very specific names.

I think 2021 is looking pretty tricky in terms of finding relative value in all space. The EGB space is massively compressed as well, in terms of country spread, so I can’t see any value there at the moment. The EU, which is not where we buy anyway, but it has repriced massively compared to the first wave of supply, so I think the value’s probably gone as well. I think it’s a bit of a struggle to find spots with value.

Isabel Wiggans: I would have to agree, it’s pretty tough to find value in this market and I think it’s going to be a stretch this year. But I think that the Canadian pension space is still fairly enticing in bits and pieces, in the 3-year sector, there’s a bit of value there. But that’s an area where there’s not much supply around so it’s hit by that aspect. It definitely feels like across the SSA space, there’s not a whole lot out there. And even covereds too. I think covereds are a little bit more attractive in that they’re very well supported by the technical lack of supply in the year ahead but they’re hard to find. It feels quite compressed even if you do stretch further out the credit spectrum.

Gavin Dredge: I think sectors that are benefiting, or the names that are benefiting, from central bank buying are largely priced for perfection. I do agree, the Canadian pension issuers, for the most part, triple A, double A plus rated, trading at spreads that in line with some low single A corporates or high triple B corporates trading, that does stand out as something that post-COVID still offers a certain amount of value.

Andy Gowans: To what extent is the transition away from LIBOR to SONIA, SOFR and ESTR influencing your investments and your hedging decisions?

Isabel Wiggans: This is very much top of mind for us here on the desk – it’s been extremely important. Obviously, this has been led by the Sterling market, so putting my Sterling hat on here, we’ve been very active in the SONIA space. It’s been a relatively straightforward transition, it’s a lot easier using the already established rate. But we’ve seen a few inaugural formats that RBC as a firm has been involved in, bringing out the SONIA+100 coupon structure as we’ve been confronted with dealing with the potential for negative rates, for example. Innovation and new product exploration have been a driver of our investment interest in that space.

One thing that’s definitely notable in USD is how slow the SOFR swap market has been to develop. That’s definitely been a bit of a roadblock – and in fairness it’s a bit of a chicken and egg situation – but it’s been a little bit disappointing to see that that hasn’t grown to the extent that we would’ve hoped by this point in time. It does feel like we are starting to get to a little bit more of a critical mass there. I think once we build up to slightly more healthy liquidity, we’ll be active in

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examining options/opportunities there as well as in the SOFR-linked bond market. It’s going to be key for the development of that market, just to see that get going. And I think it’s been great how supportive in general the SSA market has been of pushing forward the transition.

David Strock: Well, we’ve collectively decided to stay away from LIBOR instruments. We probably decided that back in June, both in terms of security investments and in terms of derivatives, so we’ve stopped using any LIBOR derivatives in Dollar and Sterling. There’s been some impact strategically but it’s not a massive constraint and obviously we’ve been very active in the RFR space in terms of SONIA and SOFR, specifically. We haven’t started getting involved with ESTR deals yet, although there were very few this year, it’s something we will look at probably next year. There’s been some impact on our investment strategy but it’s not a major issue. The LIBOR instrument supplies have dried out since start of the year, so it’s not like we have the feeling of missing any attractive deals. The idea is to naturally reduce the legacy LIBOR positions going forward in both cash and derivatives, and gradually increase exposure to new RFRs.

Grigor Sargsyan: We are in the process of looking at when we can or will transition our benchmarks from LIBOR to SOFR. In the meantime, we have stopped looking for LIBOR-linked floating rate notes maturing after March 2022, simply because it’s a lot of work to drill into each prospectus and see if the fallback language is good enough for us. Besides, in the SSA world it would be fair to say that fewer issuers, if any, are issuing US Dollar LIBOR linked FRNs, while almost all of the outstanding bonds mature before December 2021. We are somewhat less worried in the case of derivative instruments, since the language is going to be uniformly applied to all the current ISDA agreements, so the fallback there is going to be an even play for everyone.

Andy Gowans: The green bond space continues to grow. Germany launched its inaugural deal this year and the UK DMO is expected to launch a deal next year. How has liquidity evolved over time and do you think the sector should command a discount or a premium versus non-green bonds?

Gavin Dredge: We’ve been involved in the green bond market since some of the inaugural USD deals. I think definitely liquidity has improved and 2020 has been a real banner year of issuance, a lot of it in response to the pandemic. I’ve heard arguments for a concession, I’ve heard arguments for a premium. I think, in the near term, it really depends on the overall market backdrop and risk tone. So if issuers need to pay a concession full stop, then they will do so for green bonds.

As the market matures, my own perception is that ESG bonds probably will trade tighter spreads to non-ESG bonds. It does look like demand for ESG is just going to increase and it’s likely that we won’t see the same amount of supply. So that becomes a catalyst to tighter spreads and trading in a premium over time.

David Strock: We don’t have a segregated green mandate, but we’re keen to get involved in that space. But I don’t expect valuations to offer anything attractive compared to conventional bonds, if experience from issuers is anything to go by. So we’re not very keen to buy small deals, but somehow I would expect that, given the broadening investor space for ESG/ green energy, I think we’re probably going to see some larger deal sizes in the future. We might get involved in the UK yield deal, depending on where the market is at the time in terms of the spread or yields and subject to the maturity issue in that green format. It’s something we will look at on a case-by-case basis, but not within a specific green portfolio framework.

Isabel Wiggans: Similar to David, we don’t have any dedicated portfolio for it, but it is something that we have a stated interest in, and we are looking to make that a little bit more formal. We’ve kind of played in it but definitely have to see it from the perspective of liquidity as our number one mandate, which has limited portfolio development thus far.

However, this year has seen a marked improvement in liquidity in the ESG space. Given the majority of issuance this year hasn’t been green, but COVID-related social, issuance size has gone up markedly. It’s proven that these large benchmark sized deals work for an ESG focus, and I think that’s encouraged thinking around ESG as being an alternative or within the same spectrum as vanilla from a liquidity investment perspective.

It’s encouraging that the market is going to continue to mature nicely and as we see a shift in focus from issuers from these social programs to initially combat COVID, we may see that uptick in green projects that could help then bring similarly sized green benchmarks out. For us, that definitely seems like a positive, and it does seem like the market has proven that it would be supportive of that.

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In terms of there needing to be a premium or a discount, I’m inclined to think that it’s natural we see a premium settle in. We already are seeing premium, but that often is dictated by the smaller size and also the headline factor. I think that’s something that is here to stay, just given the growth in demand as well as supply.

Andy Gowans: Finally, what are the macro risks you’re focused on into next year?

Grigor Sargsyan: Now that the narrative of the vaccine is not if but when, there is a bigger chance of seeing a simultaneously rapid increase in economic activity around the world. Which might, given certain disruptions in logistics, put inflationary pressures on goods and services, which in its turn could scare the curve into becoming much steeper than we would expect otherwise. A sharp increase in longer term rates, coupled with the central banks still being in a quantitative easing mode could potentially create dissonance of further monetary policy actions and rising inflation. And this could potentially be the major macro risk factor, and undoubtedly spill over into the SSA space and the rest of the IG market.

Gavin Dredge: I probably share some of the same concerns. So I think, whether it’s 2021 or further out, the prospect of inflation potentially rearing its head is a concern. We really haven’t seen any kind of meaningful inflation in a decade now in the US and the major economies. So it’s unclear how investors will respond to that. The other wildcard is just political uncertainty. The list there is long. Brexit consequences remain uncertain. What will the incoming US administration look like and how will it behave? And there’s plenty more, but political uncertainty feels like a strong wildcard to be wary of.

David Strock: All the developments and pace of developments around COVID are going to be very important. And there’s potential for a bit of volatility on the geopolitical front, considering all the potential risk spots around the world. I think we might see geopolitics create some spikes of volatility here and there, whether it’s Iran or well, I don’t really expect a massive warming in US/China relationships going forward.

US politics as well might have some impact in terms of capacity of the administration to push forward more stimulus, whether it’s on a green front or an infrastructure front. I’m not convinced there’s going to be a massive amount of bipartisan collaboration, even if Biden probably has the capacity to try to work across the aisle and get things done, there’s some risk there considering what’s priced in at the moment.

I get the fact that the economy is going to rebound next year as we get out of the lockdowns and as the vaccinations spread among the world population. But a lot is priced in. The recovery from COVID is going to be different from the recovery from the GFC, I think it’s going to be much faster in pace. But, at the same time, we haven’t seen any substantial acceleration in wedges and price inflation in the US, even when unemployment was on 3.5% pre-crisis. I’m struggling to see a surprise blow-up in inflation in the US that would trigger a lot of big moves deeper in US rates. And the outlook for UK/Europe in terms of inflation is probably downwards, i.e. lagging behind the kind of mandated targets for years to come. I think the risk to me is that the market gets a bit out of hand and runs ahead of itself, and we don’t really get that pick-up in inflation that the market may price in.

Isabel Wiggans: All of those are very much on my mind going into next year; I definitely have a bit of concern around the political situation in the US and politics in general.

But I also worry slightly about at what point do financial markets buck off the support of the central banks and take notice of the reality of the real economy? For example, we’ve had in the UK just in the past week, 25,000 jobs put at risk because of two major retail chains collapsing. At what point does the market correct to take some of that into account, and at what point does the fiscal stimulus run out?

Likewise, there are risks in the US. There is a risk that we see a significant wave of bankruptcies; and how will the market handle that, considering where we are and how much steam there is in it at the moment? If we do see that deterioration in the real economy that may trickle into our space over the next year. There’s definitely some risk to that, and it’s particularly heightened in areas where there may be a bit of a political impasse in continuing stimulus and support over the next few months as we wait for the vaccine to do its work.

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PRIVATE PLACEMENTS: OPPORTUNITIES, NEW TRENDS AND CHALLENGES

The COVID-19 pandemic put huge amounts of pressure on funding through the markets this year. And as issuers battled intermittent illiquidity, investors were pushing for longer durations, making cross-currency swaps increasingly challenging. In an already-challenging low-rate environment, the markets have turned to non-core currencies and innovations in the ESG space taking funding beyond green bonds and onto blue and health issuances.

There may be further volatility ahead linked to the distribution of vaccines and how quickly the pandemic can be controlled. 2021 will certainly bring more huge funding programs as countries go to the markets to help pay for the economic fallout. We talk to SSAs about the year in private placements, competitive biddings and the complexities of cross-currency.

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PARTICIPANTS:

Emilie Wong Olivier Chapiteau Head of EMTNs Capital Markets Funding Officer RBC Capital Markets European Investment Bank (EIB)

Anthony Ruschpler Stephen Thompson Senior Treasury Specialist Executive Director / Head of Funding Asian Development Bank (ADB) Province of Alberta

Emilie Wong: 2020 has been a year characterized by market volatility, driven by macro and political events, but also by unprecedented pressure on SSA funding related to COVID-19. Has the importance of private placements, in terms of currencies, tenors, volumes and so on, changed in comparison to prior years?

Anthony Ruschpler: Private placements remain integral to our funding platform, both in terms of diversification and as a source of cost-effective funding. While private placements make up a similar proportion of our overall borrowing program this year at around 15%, given ADB’s increased funding requirement resulting from the COVID-19 pandemic, absolute volumes have in fact risen in 2020 to $5.4bn from $3.7bn in 2019.

Olivier Chapiteau: Private placements have always been a fully integrated and strategic piece of EIB’s funding strategy, both in terms of vanilla products and structured products, and this was the case also in 2020. On structured products, we did have a clear intention to increase and redevelop our presence. Overall, we would say that our funding mix was not materially impacted by the events of the past twelve months. We probably benefited from a certain ‘flight to quality’ in a context in which there was still a lot of liquidity in the market for specific pools of capital, while supply was erratic at times, in part due to the special circumstances under which we all had to operate.

Stephen Thompson: Yes absolutely. Generally, we are an arbitrage-driven issuer when it comes to private placements. We prefer to issue away from the Canadian domestic space and off-benchmark terms. The early days of the pandemic saw demand for privately placed Canadian Dollar trades. This definitely allowed us to more effectively navigate the volatility and intermittent illiquidity the market was experiencing.

Emilie Wong: This year we have seen some investors pushing for duration in vanilla as well as callables format in the hunt for yields, or simply to match their longer dated liabilities, and we expect this trend to carry on and the push for additional duration to extend outside G4 currencies. How have you responded to this trend this year? What are the challenges on your side, especially if cross-currency swaps are involved for instance?

Olivier Chapiteau: Regarding callable issuances – the piece of the puzzle that we have been re-adding proactively in our funding strategy – we have definitely felt a push from the investor community to get more duration, particularly in the Euro space, and we have done our best to satisfy that demand. On our side, one of the main challenges has been for our quantitative and risk teams to fine-tune their models in the less liquid pockets of the underlying markets, especially for hedges involving long dated volatility and/or cross-currency components. Looking into 2021, we do hope to be in a position to satisfy investor demand across the main foreseen currencies, even outside the G3/G4 area.

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Regarding callable issuances – the piece of the puzzle that we have been re-adding proactively in our funding strategy – we have definitely felt a push from the investor community to get more duration, particularly in the Euro space, and we have done our best to satisfy that demand. OLIVIER CHAPITEAU

Stephen Thompson: We always find there is a solid bid for duration in our name in the PP market globally, but particularly in European-based accounts. We have not as yet transacted outside the G4 with any significant duration though some interest has been expressed by investors, particularly from Asian-based accounts.

Emilie Wong: Steve, the Province of Alberta has been a frequent player in the long end Euro PP market for quite a few years indeed. This year, the push for duration also came from domestic accounts, as we saw the Province issuing for the first time a century Canadian Dollar PP and a 40yr Canadian Dollar-denominated PP. Any chance to see this push for additional duration filtering into your non-domestic PP issuances?

Stephen Thompson: As you alluded to earlier, the primary roadblock has been managing cross-currency swaps in any moderately exotic currency. There is no upside to us taking on currency risk as a sub-sovereign issuer, so we will have to wait until the right opportunity presents itself.

The primary roadblock has been managing cross-currency swaps in any moderately exotic currency. There is no upside to us taking on currency risk as a sub-sovereign issuer, so we will have to wait until the right opportunity presents itself. STEPHEN THOMPSON

Anthony Ruschpler: At ADB, we have been able to accommodate longer-dated enquiries subject to available market data for valuation purposes. This is relatively straightforward in the major currencies, but sourcing reliable market data in the more exotic ones can be a challenge. On the cost-of-funds side, we do tend to align our quotes for long- dated enquiries with the all-in cost for a 10-year Dollar Global, which means our curve is very flat after this point.

Emilie Wong: Anthony, I believe that the longest Euro outstanding PP trades for ADB are 40yr callables issued back in 2018? We are hearing more and more about investors wanting to push duration up to 50yr or 70yr in both vanilla and callable formats. Is that something you are prepared to look at as long as the funding costs meet your funding targets?

From our experience, whilst the process is quite straightforward for Euro funders, it can become a bit more of a challenge when cross-currency swaps are involved, especially if the execution is done in a competitive bidding process as most of these Euro callables trades are. Will you adapt your execution process, for instance, with a firm cap on the number of dealers that could take part in such bidding?

Anthony Ruschpler: ADB will always look at the market data and sources available and try to accommodate. In terms of plain vanilla, the max tenor that ADB can consider at the moment is 50yr and in callable format, ADB has been able to consider call dates past 30yr.

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ADB will always endeavor to take investor demand into account, but we also have to find a home for these ultra-long dated tenors, which tend to be much longer than the available assets pool – around nine years being the average on the loans book.

Emilie Wong: South African Rand (ZAR) private placements, in vanilla and callable formats, represented a significant volume of transactions for SSA issuers last year and this year. What are the other non-core currencies that you have been active in this year? How important is currency diversification for your team?

Stephen Thompson: We pulled back a bit on our foreign currency issues this year. ZAR worked well for us last year and we’re open to that market for the right trade, as always. But we were much more focused on core currency markets and the larger scale trades they generate for us. We did execute some smaller scale trades in the Nordics in Krone that we were quite pleased with. We tend to look at currency diversification with an eye to demonstrating our flexibility and developing long-term relationships with investors.

Anthony Ruschpler: The Turkish Lira has been a very active currency for us this year because investors are looking to capitalize on attractive foreign exchange and yield conditions. We executed 11 transactions, totaling TRY2.7 billion. The Hong Kong Dollar has also been a positive contributor this year, with 26 transactions totaling HK$6.235 billion. Currency diversification remains important for us. We had a few highlights in 2020, including printing the first Polish Zloty issue. We also had the first ADB local currency offering, denominated in Mongolian Tögrög. And we had the first ever ADB issue denominated in Pakistani Rupee, which was also the first PKR issue by an MDB where Pakistan is also a member country. So, over the whole year, we executed our funding program, public and private, across 22 currencies, which is by far our broadest suite of currencies in a given year.

Emilie Wong: Do you expect higher competition from European SSAs potentially looking for more funding diversification, perhaps in Local Markets (LM) or Frontier currencies in particular, as the EU SURE program is expected to take the center stage for Euro issuance in 2021?

Anthony Ruschpler: The PP market has always been very competitive in essence and ADB has always tried to adapt and show flexibility to meet investor demand and capture new opportunities. Typically, PP funding has represented between 15% and 20% of the ADB funding program, each year over the past few years. ADB has been doing investor work around the world and investors tend to be very familiar with the credit and often when they want a supra, as is often the case in these LM trades, ADB is often one of their first places to call. So, however the market landscape changes, we’re committed to adapting and adjusting, and hopefully, we will carry on the benefit that comes from our good name.

Olivier Chapiteau: For EIB, on vanilla issuances, we have been very active across a wide spectrum of currencies. In callable bonds in 2020, we focused on the G3 currencies, plus also ZAR, which we clearly identified an opportunity. Looking into 2021, our intention is definitely to keep building up issuance volumes in these currencies; however, if 2021 turns out to be a more ‘risk-on’ year, we will also consider callable opportunities in other G10, emerging market and niche currencies, provided that sufficient pricing data is available. Overall, even if our funding mix is geared towards benchmark issuances, our strategy is to seek a material and consistent level of diversification, to access different pools of capital and to satisfy the corresponding investor demand.

Emilie Wong: We are also hearing from investors across jurisdictions that ESG investments are becoming more central to their investment strategy. This year, we have seen some interesting ESG PP in vanilla core and non- core currencies, but we have also seen some ESG callable private placements printed. Have you noticed any change in investor dynamics this year? Have you received more inquiries for ESG private placements this year? If so, do you expect this trend to carry on? And if you are not already active in ESG private placements, is this on your radar for 2021?

Anthony Ruschpler: We have noticed more investor interest for our themed bond product this year compared to last year, and wider interest too. In 2020, we had issues linked to gender, health, water and green, compared to only gender and green in 2019. In total, we issued around US$1.1 billion of themed/green private placements in 2020 compared to $600 million in 2019. Going forward, we are exploring new themes to accommodate ongoing investor interest, including blue bonds.

128 | RBC CAPITAL MARKETS PRIVATE PLACEMENTS: OPPORTUNITIES, NEW TRENDS AND CHALLENGES

Emilie Wong: That’s very interesting, Anthony. That’s around an 83% increase in themed and green PP from last year, which is quite a substantial move. Do you think you saw a larger increase in the demand for callable themed and green PPs this year as investors were trying to find a yield enhancement solution in a challenging low-rates environment?

Anthony Ruschpler: Back in 2019, ADB issued around US$50 million of themed bonds callables. But this jumped to US$200 million in 2020. And that’s particularly interesting because overall “conventional” callables volumes issued by ADB dropped in 2020.

Emilie Wong: It’s good to hear about the blue bonds as well, because investors have commented on their interest in new areas of SRI and ESG being developed. Having done some work with ADB this year on a Health Bond, it was interesting to see how pragmatic your approach was to meet investors’ interests within the themes available to ADB. EMILIE WONG

Anthony Ruschpler: Yes, and this year, the demand for gender bonds in particular has increased, along with the demand for health bonds, which is to be expected with specific demand for projects including some form of COVID-19 response. But this demand for themed bonds is also in line with the increased borrowing demand from ADB this year.

Olivier Chapiteau: We have also noticed a rise in the enquiries on callable bond issuances for which investors have a preference for an ESG or green format, especially from Asia and more specifically from Japan. Given the EIB’s positioning as the EU Climate Bank, with a strong focus on the promotion of green and sustainable initiatives, this is something we are obviously sensitive to. That being said, we do have already a strong presence in the space with a specialized funding team offering dedicated products, so we have to be cautious with any changes on an approach that has been very successful so far. Also, the issuance amounts in this product are limited by the asset side – as we link the two very closely. We have preferred to keep the volumes for public issuance low so far but as volumes grow, we will continue to monitor the developments on the ESG callable bond front and to assess what could strategically make sense for us.

Stephen Thompson: We have not been active in the ESG space or any use-of-proceeds market, as yet. Due to the intensity of the Province’s energy sector and its far-reaching impact on most aspects of the economy, this is clearly an important issue for us. As the sustainability space matures and advances are made by the energy sector in reducing greenhouse gas emissions and advancing low-carbon technology, we feel that opportunities may be open to us in this space.

Emilie Wong: As we all know, investors often need to demonstrate best execution and one of the ways to do so is by conducting competitive biddings. What are the challenges attached to these types of execution on your side? Have you noticed more challenges as these executions take place in markets where cross-currency swaps are less liquid? What could dealers do to help streamline this process and make it more efficient from your standpoint?

Olivier, perhaps you can start, as EIB has been more active in callables EMTN this year vs 2019. How did you find the execution process when competitive biddings have been required with European and Asian investors?

Olivier Chapiteau: Yes, we have definitely witnessed a trend leading to more competitive biddings. As one of the tools helping investors to capture the best opportunities, we are obviously fine with this. Now, as you mentioned, they do come with a number of challenges, especially on the execution and operational sides, which need to be handled properly by all parties involved to reach the best possible outcome.

129 | RBC CAPITAL MARKETS PRIVATE PLACEMENTS: OPPORTUNITIES, NEW TRENDS AND CHALLENGES

Fundamentally with such biddings, you do get an investor activating multiple dealers, which then engage with one or sometimes several issuers. Although it may sound trivial, this requires a well-structured coordination and a clear communication to ensure that everybody can optimally participate. Timing planning is also crucial, especially for products in non-core currencies or with complex volatility hedging implications, as you want to avoid liquidity dry- ups in the underlying markets.

So appreciating that dealers are still in competition with each other – as intermediaries between investors and issuers – we do think it is important that dealers cooperate in setting up execution processes that guarantee the best possible outcome to investors. Of course, this is naturally a challenging endeavor given the usual time pressure constraints of such executions.

Emilie Wong: Steve, I’m interested to hear about your experiences, especially as a Canadian Dollar-based issuer that has been active in long dated G4 currencies issuance.

Stephen Thompson: As a less frequent issuer, we have not been faced with too many competitive biddings yet. Investors active in the long end diversification trades with the Province tend to be aware of the impact that execution strategy can have on illiquid cross-currency markets. Through regular meetings with investors, and education from dealers who are familiar with the sensitivities around these executions, we are confident that we can find alternative solutions for investors to meet their best execution.

We look for fairly significant savings in this space which does provide us some comfort around execution levels, but equally makes the execution of these trades rather sensitive with limited room to manoeuvre. Should we become more active, we will likely have to introduce some limitation on the competitive nature of certain execution.

Anthony Ruschpler: There have been a number of competitive biddings this year that we have been part of which are more layered, as there is already a competitive process that takes place prior to requests being received by ADB. For the more formal competitive bidding, it can be a challenge when we have more than three dealers come to us requesting individual working mandates in a short space of time, but we do our best to accommodate the review work. Something that is perhaps more of an issue for the investor is the time lag between when a dealer shows their best price and when an order is left with the winner, as in more exotic currencies, volatile market conditions mean that levels frequently have moved away from the investor’s target.

For the more formal competitive bidding, it can be a challenge when we have more than three dealers come to us requesting individual working mandates in a short space of time, but we do our best to accommodate the review work. Something that is perhaps more of an issue for the investor is the time lag between when a dealer shows their best price and when an order is left with the winner, as in more exotic currencies, volatile market conditions mean that levels frequently have moved away from the investor’s target. ANTHONY RUSCHPLER

Emilie Wong: We heard from several SSA issuers this year that some competitive biddings process were indeed more layered, but also got a bit difficult to manage due to the number of dealers involved and the timing of these biddings. Some issuers are thinking about mandating only on the basis of pre-approved T/S templates that they would share with dealers. In some other sectors, we have seen issuers also limiting the number of dealers that can take part to the competitive bidding process to a maximum of three. Is that something you may consider doing, especially when trades involve quite illiquid cross-currency swaps?

Anthony Ruschpler: As I said, we will try to accommodate the best we can and we do have a funding team to accommodate competitive bidding. That being said, the situation is more complicated when these biddings involve more than three dealers. Some issues can arise also, for instance, for new structures where dealers each have specific requirements, or when biddings are organized late in the day and without a sufficient heads-up. ADB always tries to accommodate as clearly, we don’t want to turn potential business away. But there have been a few instances, especially on trades involving less liquid cross-currency swaps, where the competitive bidding process may have not delivered the best outcome for the parties involved. For example, in some instances the swap moved on the back of several dealers quoting, and the outcome was that no trade was done as investor’s target could not be reached.

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So far, we have not limited the number of dealers taking part in competitive bidding and we haven’t imposed the use of pre-approved term-sheets, as we try to be as flexible as possible. On the public side, though, we ask the leads to use ADB’s template term-sheets.

Emilie Wong: As we close 2020, an unprecedented year from a funding standpoint, it would be interesting to hear what opportunities and challenges you see for the private placements markets in 2021?

Anthony Ruschpler: We expect similar challenges going into 2021, like the bouts of extreme volatility we saw this year in some EM markets. The LIBOR transition itself is something that will impact everyone across both public and private placement markets.

Olivier Chapiteau: We believe the first key will be to see whether the COVID-19 crisis starts to be materially mitigated worldwide. If not, 2021 may still be a relatively ‘risk-off’ and slow-moving year. But if things get better on this front, we do hope to see an increase in innovation and in the issuance of structured products.

Given the low rate environment, we would expect that, at least for an SSA issuer like ourselves, this would still mean a strong focus on callable bond issuances. With regard to EMTN market framing initiatives such as the LIBOR transition or the digitalization of processes, we believe these will most likely keep peaking up in 2021, while bearing in mind these should be very gradual evolutions, especially when considering more complex or structured products.

Stephen Thompson: A lot will obviously depend on the ongoing pandemic and its impact on borrowing programs. The pace of issuance does not seem likely to abate as stimulus continues to flow from most Sovereigns. This, combined with the high potential for volatility as recovery plans succeed or fail, will make for interesting times at the very least. The LIBOR transition seems more of a technical complication than a challenge in context, but not one to be trivialized.

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SELECT RBC-LED TRANSACTIONS IN 2020

USD 2.0 billion USD 5.0 billion USD 5.0 billion USD 1.0 billion CT3+26bps MS+10bps MS+13bps MS+16bps due 2023 due 2023 due 2025 due 2023

Joint Bookrunner and Joint Bookrunner B&D Joint Bookrunner Joint Bookrunner April 2020 June 2020 July 2020 June 2020

USD 1.5 billion USD 1.25 billion GBP 12.0 billion GBP 350 million MS+13bps MS+41bps UKT+8.5bps0.375% UKT+48bpsTap due 2025 due 2030 due Oct-30 due 2022

Joint Bookrunner and Joint Bookrunner and Joint Bookrunner B&D Joint Bookrunner B&D September 2020 May 2020 May 2020 May 2020

GBP 750 million GBP 1.0 billion GBP 300 million GBP 750 million UKT+42bps UKT+60bps UKT+47bps UKT+30bps due 2024 due 2023 due 2025 due 2027

Joint Bookrunner and Joint Bookrunner and B&D Joint Bookrunner B&D Joint Bookrunner June 2020 May 2020 July 2020 October 2020

132 | RBC CAPITAL MARKETS SELECT RBC-LED TRANSACTIONS IN 2020

AUD 1.1 billion AUD 500 million AUD 625 million EUR 1.1 billion ASW+20bps ASW+50bps ASW+53bps MS+70bps due 2026 due 2023 due 2023 due 2025

Joint Bookrunner Joint Bookrunner Joint Bookrunner Joint Bookrunner November 2020 April 2020 May 2020 April 2020

USD 1.0 billion CAD 1.5 billion USD 1.5 billion USD 700 million SOFR+28bps MS+3bps MS+16bps SOFR+27bps due 2024 (Index) due 2025 (SDB) due 2030 (CAB) due 2023

Joint Bookrunner and Joint Bookrunner and Joint Bookrunner and Structurer Joint Bookrunner B&D B&D February 2020 June 2020 September 2020 November 2020

USD 1.5 billion GBP 1.0 billion GBP 750 million EUR 500 million SOFR+31bps SONIA+28bps SONIA+25bps €STR+42bps due 2025 due 2025 (Index) due 2023 (Shift) due 2023

Joint Bookrunner and Joint Bookrunner JLM, Structurer & B&D Joint Bookrunner B&D September 2020 August 2020 February 2020 April 2020

133 | RBC CAPITAL MARKETS >PARTICIPANTS HOME

PARTICIPANTS

LIFE AFTER LIBOR

Sean Taor Head of European DCM and Syndicate. RBC Capital Markets (RBCCM)

Sean has over 30 years of Capital Markets experience; joining RBCCM in 2010 as Head of Public Sector DCM and appointed Head of European DCM in 2011. Prior to joining RBCCM he spent 18 years at Barclays where he held various Capital Market roles; from head of SSA and Covered Bond primary and secondary trading to head of Rates Syndicate globally.

Sean has been involved in the underwriting of over $1tn of syndicated fixed income transactions across SSA, Corporate and FIG issuance. He has been awarded GlobalCapital’s ‘Sovereign Banker of the Year’ and recognized by GlobalCapital as one of the ‘Top 25 most Influential DCM Market Participants’.

Isabelle Laurent Deputy Treasurer, Head of Funding. European Bank for Reconstruction and Development (EBRD)

Isabelle spent 13 years in London and Hong Kong in treasury, fixed income origination, and swaps trading and marketing with Swiss Bank Corporation International, Nomura International and latterly at NatWest Markets where she was Director of Debt and Derivatives Marketing.

She joined EBRD in 1997 as Deputy Head of the Treasury Funding team, and was promoted to Deputy Treasurer and Head of Funding in 2003. In addition to overseeing EBRD’s issuance in the capital markets and investor relations, Isabelle also focuses on capital markets’ development in EBRD’s countries of operations and sustainable finance.

Xavier Leroy Senior Funding Officer, New Products and Special Transactions. European Investment Bank (EIB)

Xavier Leroy joined the EIB in 2009 as Senior Funding Officer and took care of the GBP issuance for the Bank for almost 10 years before taking over the responsibility of RFR issuance for the New Products and Special Transactions team, a position in which he developed transactions over EUR, GBP and USD.

Prior to joining the EIB, Xavier worked for BNP Paribas, mainly as a DCM corporate banker.

Katie Kelly Senior Director, Market Practice and Regulatory Policy. International Capital Market Association (ICMA)

Katie Kelly is primarily responsible for representing the interests of ICMA’s primary market issuer constituency (financial issuers and corporates). More recently, Katie has been working on the transition from LIBOR to risk-free rates and is active in the various associated working groups of the £RFR Working Group, with a particular focus on the adoption of SONIA as the new risk-free rate and the transition of legacy LIBOR instruments.

Prior to joining ICMA in 2011, Katie practiced law at Linklaters in both the London and Paris offices before taking a position as Treasury Counsel at British American Tobacco.

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UK GILT MARKETS

Sir Robert Stheeman Chief Executive. United Kingdom Debt Management Office (DMO)

Robert Stheeman worked on debt capital market issues at Deutsche Bank from 1986 until 2002 before becoming Chief Executive of the United Kingdom Debt Management Office in January 2003. The DMO was established as an executive agency of HM Treasury in April 1998 to carry out Government debt management (issuing gilts and managing the gilts market) and cash management (balancing the Government’s daily cash needs by issuing Treasury Bills and other transactions in the sterling money markets).

Peter Schaffrik Chief European Macro Strategist. RBC Capital Markets

Peter joined RBC in September 2010 from Dresdner Kleinwort/Commerzbank, where he was the co-head of global rates strategy. At RBC, Peter first held the position of Head of European Rates Strategy and is currently our Chief European Macro Strategist, leading a team of experienced economists and strategists covering the UK and Continental Europe. Peter works closely with our other strategy teams around the globe in formulating RBC’s macroeconomic and interest rate views.

David Parkinson Sterling Rates Product Manager. RBC Capital Markets

David Parkinson is responsible for co-ordinating all aspects of RBC’s Sterling Rates platform, alongside his own coverage of a range of sterling-focused investors. Before joining RBC in 2008 to build up the gilt business David Parkinson spent the best part of twenty years in various buy-side and sell-side roles, mostly focussed on Sterling Fixed Income.

Adam Baker Client Portfolio Manager, LDI Client Portfolio Manager. Blackrock

Adam focuses on the design, development and performance of LDI mandates encompassing solutions across asset classes.

Prior to joining BlackRock, Adam spent 12 years at J.P. Morgan working across roles in EMEA Cross-Asset Structuring and UK Sales, where he led the Pensions and Insurance Sales team for five years, structuring and executing trades across rates, inflation, financing, equities, credit and FX. Before this, he spent two years at ABN AMRO, primarily on the Inflation Trading desk.

Evan Guppy Head of LDI. Pension Protection Fund (PPF)

Evan is responsible for managing the PPF’s strategy for hedging the interest-rate and inflation risk of its liabilities through its allocation to UK government bonds and derivatives. He joined the PPF in 2019 from BlackRock where he worked as an LDI portfolio manager within their Fixed Income business. Prior to that, Mr Guppy spent 9 years at HSBC, where he worked on the interest-rate and inflation trading desks, latterly as head of the inflation trading desk in the UK. He has been trading gilts in some form since 2002.

135 | RBC CAPITAL MARKETS PARTICIPANTS

Mitul Patel Head of Active Liability Solutions. Legal & General Investment Management (LGIM)

Mitul is responsible for mandates which provide flexible liability plus solutions that deliver a return over the client’s specific benchmark. Mitul joined LGIM in 2018 from Janus Henderson Investors where he held the title of Head of Interest Rates. He was the lead fund manager for government bond portfolios, managed interest rate overlay strategies for Multi Sector Fixed Income portfolios, and was a member of the Investment Strategy Group.

He has 14 years’ experience in risk-taking across developed interest rates, inflation and FX markets, for a range of benchmarked, absolute return and total return style funds.

MDB CALL TO ACTION

Jigme Shingsar Managing Director. RBC Capital Markets

Jigme Shingsar joined RBC Capital Markets after 10 years at Salomon Brothers and Citigroup where he was primarily responsible for US based coverage of global borrowers and cross border issuance. Prior to joining Salomon Brothers, Jigme was at Bank of Montreal responsibile for coverage of public sector clients. Jigme’s current coverage responsibilities at RBC encompass global relationships with Supranationals, Sovereigns and Agencies.

Anthony Tien Ruschpler Senior Treasury Specialist. Asian Development Bank (ADB)

He joined the Funding Division of the Treasury Department in November 2015 and is primarily responsible for monitoring, evaluating and executing funding opportunities in various capital markets as part of the ADB’s annual borrowing program.

Prior to joining the Asian Development Bank, Anthony worked as a Senior Treasury Officer at the African Development Bank (AfDB).

Domenico Nardelli Treasurer. Asian Infrastructure Investment Bank

Nardelli manages AIIB’s Treasury Department. He is responsible for the investment of the Bank’s liquid assets, capital markets operations including payments and back office, and asset and liability management. Before joining AIIB in September 2019, he was Treasurer of the International Fund for Agricultural Development, a specialized agency of the United Nations based in Rome, Italy.

Prior to that, he spent several years in investment banking in London, where he was Managing Director in Global Rates responsible for Public Sector coverage and Euro Medium-Term Note issuance, first at the Bank of America and then at Jefferies, a financial services company. Nardelli started his career at the Italian Treasury as an officer in the Public Debt Department, where he went on to become the Head of International Funding and Liability Management. During that time, he served as Advisor to the Executive Director at the International Monetary Fund in Washington, DC. Nardelli has extensive experience in asset and liability management, capital markets, and financial markets policy issues.

136 | RBC CAPITAL MARKETS PARTICIPANTS

Laura Fan Head of Funding. Inter-American Development Bank (IDB)

Laura E. Fan is the Head of Funding, Treasury Division at the Inter-American Development Bank. She is responsible for overseeing the IADB’s bond issuance and derivatives operations in the international capital markets and Investor Relations Program. Prior to that, she worked at Societe Generale Securities, New York, in various positions, including Quantitative Analysis and Marketing, and ending as a Vice President, Fixed Income Sales. She was responsible for selling European fixed income products to US institutional investors. She holds a Master of Arts degree in Economics from Columbia University, New York, and a Bachelor of Arts in Economics along with a Bachelor of Science in Finance from Pennsylvania State University.

Flora Chao Global Head of Funding, Treasury Market Operations, Treasury and Syndications. International Finance Corporation

Flora Chao oversees IFC’s global funding operations and investor relations based in Washington, D.C. Her team covers both public and private debt capital markets, as well as structured and plain vanilla bond issuances. Previously, she oversaw funding operations in the Asia region, including Australia, New Zealand, China, India and Japan. Prior to joining funding operations, Flora was in the Treasury Client Solutions department at IFC, specializing in structured finance transactions in Asia, Latin America and the Middle East.

She began her career at Goldman Sachs in its Asset Backed Securitization group and then moved to Morgan Stanley to help start its public sector student loan securitization group.

Arturo Seco Presencio Deputy Chief Financial Officer, Head of Funding Division, Head of Treasury & ALM Division, Council of Europe Development Bank

Arturo Seco Presencio joined Council of Europe Development Bank (CEB) in 1999 and, after having held different positions, he works today as Deputy Chief Financial Officer at the institution’s Directorate for Finance where he is responsible for the Funding, Treasury and Asset & Liabilities Divisions. Prior to joining CEB he worked for the Commercial Office of the Spanish Embassy in the United Arab Emirates as a financial advisor. Previously he worked for Capital Markets Brokerage, a Spanish firm specialised in public debt and fixed income products. He started his international career at the Financial Department of the British Red Cross in London.

Jens Hellerup Head of Funding and Investor Relations, Nordic Investment Bank (NIB)

Jens is currently Head of Funding and Investor Relations. Prior to that he was Deputy Head of Funding. Jens joined NIB in 2000 as Portfolio Manager. Before NIB Jens was a Financial Analyst at TDC Group.

Andrea Dore Head of Funding, World Bank (IBRD)

Andrea joined the Bank in 1998 and has worked in a number of units in the Bank’s Treasury including pension, cash management, operational risk and structured products. Andrea’s current responsibilities include managing the World Bank’s funding program and strategy in several of the major currency markets and the emerging markets. She is responsible for the issuance of the World Bank’s benchmark bonds in a wide range of currencies and markets including Canada. Additionally, Andrea worked on setting up the infrastructure for the World Bank Green Bond Program. She has also managed several projects focused on strengthening the controls and monitoring of operational risk across the World Bank’s finance complex.

Prior to joining the World Bank Andrea worked at the St. Lucia Development Bank for 6 years, first in the Accounting Department and then in the Projects Department managing a portfolio of the bank’s development projects.

137 | RBC CAPITAL MARKETS PARTICIPANTS

Heike Reichelt Head of Investor Relations and Sustainable Finance, Capital Markets and Investments, Treasury. (IBRD) World Bank

The World Bank Treasury manages the funding programs for the World Bank (International Bank for Reconstruction and Development, IBRD), the International Development Association (IDA), and the International Finance Facility for Immunisation (IFFIm). Her team is responsible for managing relationships with bond investors, rating agencies and the financial media, and developing new bond products. These include products to raise awareness for the Sustainable Development Goals (SDGs) and climate change mitigation and adaptation - like World Bank Green Bonds and World Bank Sustainable Development Bonds. Heike also manages outreach to the sustainable and impact investing community and works with other issuers and market participants to encourage the growth of sustainable capital markets focused on making a long-term positive social and environmental impact through integration of environmental, social and governance criteria (ESG) in investment decisions.

She has 20+ years of experience in finance – including as an engagement manager for the World Bank Treasury’s Reserves Advisory Management Program for central banks and in the areas of export finance and capital markets, during her career at KfW, the largest German development bank. Heike was recognized for her role in building sustainable capital markets as the 2017 recipient of the prestigious Joan Bavaria Award.

EUROPEAN LANDSCAPE AND EU RESPONSE

Peter Schaffrik Chief European Macro Strategist. RBC Capital Markets (RBCCM)

Peter joined RBCCM in September 2010 from Dresdner Kleinwort/Commerzbank, where he was the co-head of global rates strategy. At RBC, Peter first held the position of Head of European Rates Strategy and is currently our Chief European Macro Strategist, leading a team of experienced economists and strategists covering the UK and Continental Europe. Peter works closely with our other strategy teams around the globe in formulating RBC’s macroeconomic and interest rate views.

Siegfried Ruhl Siegfried Ruhl is Counselor to the Director General in the Directorate-General for Budget of the European Commission since October 2020. He is seconded by the European Stability Mechanism (ESM) to support the European Commission in the Funding of NGEU. At the ESM he was Head of Funding & Investor Relations and responsible for the management of €300 billion of outstanding debt with a more than €80 billion funding programmes in bonds and bills for both ESM and European Financial Stability Facility (EFSF). He is also in charge of the management of the funding related derivatives transactions. Additionally he managed the communication and relationship with more than 1700 investors.

Siegfried Ruhl officially joined ESM in January 2013 but he was already heading the division that established the funding programme for EFSF at the Bundesrepublik Deutschland Finanzagentur, which was initially responsible for issuing the EFSF bonds and bills.

Prior to this, he had worked in the trading and issuing business at the Bundesrepublik Deutschland Finanzagentur for 11 years. He also worked for the Deutsche Bundesbank for six years, where he started his career in financial markets as a trader at the Frankfurt Stock Exchange.

Siegfried Ruhl graduated in Business Administration from the University of Applied Science in Hachenburg.

138 | RBC CAPITAL MARKETS PARTICIPANTS

A LAND DOWN UNDER

Daniel Wilson Vice-President, APAC Syndicate. RBC Capital Markets Daniel leads transactions for SSAs, FIs (in covered, senior and tier 2 format) and Corporates in A$ and has responsibilities for Derivative Solutions. He joined RBC in 2015. Daniel commenced his career with Deutsche Bank in 2007 where he performed a variety of roles in the FICC business.

Anthony Tien Ruschpler Senior Treasury Specialist. Asian Development Bank (ADB)

Anthony joined the Funding Division of the Treasury Department in November 2015 and is primarily responsible for monitoring, evaluating and executing funding opportunities in various capital markets as part of the ADB’s annual borrowing program. Prior to joining the Asian Development Bank, Anthony worked as a Senior Treasury Officer at the African Development Bank (AfDB).

Lars Ainsley Senior Manager, New Issues. KfW

Responsible for KfW’s capital market funding activities, especially for public issuances in EUR and AUD, since December 2015. Prior to this, Lars was in charge of disclosure and SEC reporting and gained experience in investor relations at KfW.

Mascha Ketting Manager, Capital Markets & Investor Relations Department. BNG Bank

Mascha joined BNG Bank in 1999. Prior to her current role, Mascha was a dealer within the Money Markets & Treasury team, with responsibility for BNG’s short term ECP and USCP issuance program.

Andrea Dore Head of Funding, World Bank (IBRD)

139 | RBC CAPITAL MARKETS PARTICIPANTS

THE IMPORTANCE AND BENEFITS OF A DIVERSE ISSUANCE PROGRAM

Stuart McGregor Managing Director, DCM Syndicate. RBC Capital Markets

Stuart joined RBC in 2012 after over 25 years’ experience in the financial markets. Prior to joining, Stuart spent 12 years at Merrill Lynch where he was responsible for the Global SSA Syndicate and DCM desk. He has spent almost all of his 30+years in the market focused on the Public Sector debt market, helping to pioneer the newest growth segment of Debt markets by working closely with EIB on their first Green bond.

James Taunton Director, Debt Capital Markets RBC Capital Markets James works in the Public DCM team in London. He has 10 years of Capital Markets experience, primarily focused on the European Sovereign, Supranational & Agency sector. He has been involved in the underwriting of over 500 transaction totalling over $150bn during since 2012, spanning a number of landmark transactions across the Benchmark, Risk Free Rate, ESG & Local Market spectrum.

James was awarded GlobalCapital’s “Rising Star SSA Banker” in 2017 & 2018.

Eila Kreivi Director, Head of the Capital Markets Department. European Investment Bank (EIB)

Eila Kreivi is Director and Head of the Capital Markets Department at the EIB. Previously, she worked as Head of Funding for the Americas, Asia & Pacific at the EIB. Prior to joining the financing arm of the European Union in 1995, Eila Kreivi worked at the Union Bank of Finland and Société Générale, in Helsinki and in Paris.

Eila chaired the Executive Committee of the Green Bond Principles in 2015-2018. She has represented the EIB at the EU High-level Expert Group on Sustainable Finance in 2017-2018, established by the European Commission. She is an alternate member of the Board of Directors of the European Investment Fund (EIF). She also represents the EIB at the Technical Expert Group on Sustainable Finance created by the European Commission in 2018.

Dominika Rosolowska Sustainability Funding Officer. European Investment Bank (EIB)

Dominika is part of EIB’s Sustainability Funding Team, responsible for issuance of climate and sustainability bonds across all currencies. She has been with the EIB since 2010, previously in a funding officer role at the Americas, Asia and Pacific desk.

Beyond issuance, Dominika has been part of EIB’s broad market and policy engagement. This includes initiatives such as development (in cooperation with EIB’s energy and climate engineers and economists) of the Bank’s first green bond impact report, as well as of the IFI Green Bond Impact Reporting Harmonization Framework (2015-2016).

Nathalie de Weert Head of Funding, Public Markets, Capital Markets Department. European Investment Bank (EIB)

Nathalie heads up the Public Markets Division, which is tasked with raising funds in all public markets in non- benchmark format. This includes issuance denominated in currencies of well-developed markets like, among others, Euro, Sterling, Canadian Dollar as well as in emerging market currencies. In 2020, EIB has raised around EUR 70bn, with a high level of currency diversification, via issues in 16 currencies in addition to EUR and USD.

Before joining the EIB in Luxembourg, Mrs de Weert spent close to 10 years in The Netherlands where she was Senior Manager in charge of funding at BNG (Bank Nederlandse Gemeenten), the Dutch Public Sector Agency.

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Richard van Blerk Deputy Head of Division, America, Asia, Pacific, Capital Markets. European Investment Bank (EIB)

Richard van Blerk joined the EIB in 2005 and as a member of the Benchmark funding team, he has been actively involved in the issuance of EIB’s benchmark product. He has been focusing on USD Global issues since 2012 and in 2019 the Bank’s EUR benchmarks were added.

Prior to this funding role in Luxembourg, Richard worked at ABNAMRO Bank in both Amsterdam and London trading a variety of interest rate derivatives.

CONSISTENTLY CONSISTENT: NOW AND NEXT FOR EUROPE’S PUBLIC SECTOR AGENCIES

Andrea Jelic European SSA Origination, Debt Capital Markets. RBC Capital Markets

Andrea Jelic is a Director in the RBC SSA DCM team in London. She has over 13 years of Capital Markets experience, predominately focussing on European clients. She has led the origination of a number of milestone transactions across a broad range of products including Benchmarks, new Risk Free Rate Issuance, Local currency (inc. Renminbi and Panda bonds), Green/Social/Sustainable Bonds, Inflation-Linked bonds and Capital issuance, and several inaugural transactions.

Eleanor Singer Vice-President, SSA DCM Origination. RBC Capital Markets

Eleanor is a Vice President in the SSA DCM Origination Team at RBC Capital Markets. She joined the team and RBC Capital Markets in 2015.

Sven Lautenschläger Head, International Refinancing. Landeskreditbank Baden-Württemberg (L-Bank)

Under Sven’s leadership, L-Bank has further developed a reputation stretching back 20 years for innovative high- class issuance. Recent transactions include the first CNH for a European agency issuer and the first CNH-FRN linked to HIBOR. With the focus on floating rate products, L-Bank also issued the first SOFR-linked FRN for an European Agency issuer and the first ever €STR-linked FRN globally.

Before joining the Refinancing Division of L-Bank, Sven worked in Risk Controlling, for Dresdner Bank and L-Bank. He has also acted as Chair of the State Project Finance Company of Baden-Wuerttemberg and manager of L-Bank’s investment and liquidity portfolio.

Frank Richter Head, Investor Relations. NRW.Bank

Frank is responsible for communicating with investors, green and social bonds as well as actively broadening and maintaining the investor base of NRW.BANK through various investor relations activities.

Since 2012, he has also assumed responsibility for sustainability topics at NRW.BANK, establishing the Green Bond Programme in 2013 and issuing the first syndicated and listed green bond by a European regional agency. He is now working on a Social Bond Programme. A framework was published and the first Social Bond was placed in the market in July 2020.

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Tom Meuwissen General Manager, Treasury. NWB

As treasurer, Tom covers long term funding, investor relations, ALM and Cash Management at NWB Bank. Prior to this, he worked at MeesPierson (now ABN Amro) in the bank treasury and on the corporate clients advisory.

Anish Gupta Head of Treasury, Managing Director. Oesterreichische Kontrollbank (OeKB)

Since 2016, Anish has headed up treasury at OeKB, with a major focus on capital markets, liquidity management, investments, derivatives and asset liability management. Prior to this role, he was senior director and deputy head at the international finance department, following his start at the bank as an assistant manager responsible for funding and risk management activities for the Austrian Export Finance System.

Anna Finnskog Funding Director. SEK Svensk Exportkredit Corporation. (SEk)

Anna works in the funding team, issuing bonds to institutional investors in many different markets around the world. She has more than 20 years of experience from capital markets and began her career at SEK in 1994 as a trader before moving on to work with funding.

THE FUTURE OF ESG

Sarah Thompson Director, Sustainable Finance. RBC Capital Markets

As part of the Sustainable Finance Group, Sarah works closely with corporate and institutional clients globally who view Environmental, Social and Governance (ESG) factors as important considerations in their corporate strategy and investment decision-making process.

Sarah joined RBC in 2011 as the bank’s first Green IT Manager. In 2013, she moved to RBC’s Corporate Sustainability Team to oversee enterprise-wide operational footprint reduction initiatives, produce ESG disclosure and support business units with the development of sustainable financial products and services. In addition, Sarah partnered with RBC’s Corporate Treasury Group to establish RBC’s Green Bond Program. Sarah represents RBC Capital Markets on the ICMA Climate Transition Finance Working Group and the LSEG Sustainable Bond Market Advisory Group.

Mansoor Khan Director, Debt Capital Markets. RBC Capital Markets

Mansoor is Director Government Finance at RBC Capital Markets. Since he joined RBC he has been working and advising clients on establishing Green Bond Programs and bringing them to the market. He is a member of the ICMA Climate Transition Finance working group and also organizes a global RBC Sustainable Debt Conference annually in Toronto.

Jürgen Köstner Vice-President, Head of Investor Relations. KfW

Jürgen Köstner joined KfW in 1996. Since 2009, he has been responsible for KfW’s investor relations activities including KfW’s credit rating and disclosure. Before entering the Capital Markets Department in 2007, Jürgen worked in various positions in KfW’s domestic business sector, where he was in charge of strategic new projects or private equity financings.

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Angela Brusas Director, Funding and Investor Relations. Nordic Investment Bank (NIB)

Angela and the Funding and Investor Relations team are responsible for funding the Bank’s activities on the international capital markets and for the Bank’s investor relations. She represents NIB in the Executive Committee of the Principles, and is co-coordinating the work in the Principles’ Impact Reporting working group and the Taskforce for Q&A Guidance Handbook.

Karoliina Kajova Manager, Funding. Municipality Finance (MuniFin)

Karoliina works as a Funding Manager at Municipality Finance (MuniFin), the Finnish local government funding agency. Karoliina joined MuniFin’s funding team in 2013. Karoliina works with MuniFin’s global wholesale funding focusing on both benchmark bond issuance including Green bonds and Social bonds as well as private placement issuance (annual volumes EUR 7-10 billion). Karoliina also takes part in managing investor relations.

Heike Reichelt Head of Investor Relations and Sustainable Finance, Capital Markets and Investments, Treasury. (IBRD) World Bank

She has 20+ years of experience in finance, including as an engagement manager for the World Bank Treasury’s Reserves Advisory Management Program for central banks and in the areas of export finance and capital markets, during her career at KfW, the largest German development bank. Heike was recognized for her role in building sustainable capital markets as the 2017 recipient of the prestigious Joan Bavaria Award.

SSA MAPLE

Jigme Shingsar Managing Director DCM, RBC Capital Markets

Alex Caridia Head of Government Finance, Canada. RBC Capital Markets

Alex joined RBC in 2004 and spent 13-years in RBC’s European DCM team where he held a variety of roles covering Corporate, Financial and Public Sector Issuers. Prior to joining RBC, Alex worked in Societe Generale’s London and Frankfurt Capital Markets and Derivatives teams.

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Aldo Romani Head of Sustainability Funding, European Investment Bank (EIB)

Piet Jurging Head of USD and CAD funding, KFW

Andrea Dore Head of Funding, World Bank (IBRD)

Zauresh Kezheneva Associate Funding Officer, International Finance Corp (IFC)

Laura Fan Head of Funding. Inter-American Development Bank (IDB)

Andy Kochar Vice-President, Portfolio Manager & Head of Global Credit, AGF Investments (AGF)

Alain Hage Director Liquid Asset Portfolio, RBC Corporate Treasury

CANADIAN PUBLIC SECTOR ISSUERS

Craig Wright Senior Vice President & Chief Economist, RBC Capital Markets

As chief economist, Craig leads a team of economists providing economic, fixed income and foreign exchange research to RBC clients. Craig is a regular contributor to a number of RBC publications and is a key player in delivering economic analysis to clients and the media through the Economics Department’s regular economic briefings.

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A graduate of Wilfrid Laurier University and the University of Toronto, Craig was appointed Chief Economist in 2001 having joined RBC in 1994 after working at another financial institution for seven years. Craig is a participant in a number of the key RBC internal committees and is a member of the CD Howe Monetary Policy Council, Lazaridis School of Business and Economics Wilfrid Laurier University, Dean’s Advisory Council at Wilfrid Laurier University and the British Columbia Economic Forecast Council.

Kevin Martin Director, Government Finance, RBC Capital Markets

Kevin joined the RBC Government Finance team in 2017. His primary responsibility is providing RBC’s provincial, municipal, and federal crown corporation customers with advice and execution in the debt capital markets. Kevin has over 15 years of experience advising, structuring and pricing new issue debenture transactions for Canadian government issuers. Prior to joining RBC, Kevin worked for 18 years on the investment advisory and government finance desks with another major Canadian bank.

Jigme Shingsar Managing Director DCM, RBC Capital Markets

Stephen Thompson Executive Director, Capital Markets, Treasury Board and Finance, Province of Alberta

Nicolas Moreau Director General, Funds Management Division, Financial Sector Policy Branch, Department of Finance, Canada

Dave Ayre Treasurer. Canada Mortgage and Housing Corporation (CMHC)

Chad Buffel Principal Portfolio Manager. Export Development Canada (EDC)

Don Delisle Director, Capital Markets. Province of Manitoba

Charles Allain Executive Director, Debt Management. Province of Nova Scotia

Mike Manning Executive Director and Chief Executive Officer, Capital Markets. Ontario Finance Authority

Renaud De Jaham Vice President and Treasurer. PSP Investments

Guillaume Pichard Managing Director, Capital Markets and Treasury, Ministry of Finance. Province of Quebec

Rod Balkwill Executive Director, Treasury Management Branch, Ministry of Finance. Province of Saskatchewan

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Dominic Sicilano Vice-President, Portfolio: Construction, Active Duration. Addenda Capital

Ryan Goulding Fund Manager. Leith Wheeler

Abid Dobani Managing Director, Head Portfolio Management, Execution and Strategy – Corporate Treasury. RBC Capital Markets

IS THERE MORE TURBULENCE AHEAD FOR SECONDARY MARKETS?

Andy Gowans Director SSA Trading. RBC Capital Markets

Andy is responsible for RBCs USD SSA secondary trading business in London. Prior to joining RBC in 2014 Andy was responsible for EUR SSA and Covered Bond trading at the Royal Bank of Scotland.

Isabel Wiggans Associate Director, Asset Portfolio Manager, RBC Funding and Liquidity. RBC Capital Markets

Izzy Wiggans has 5+ years of experience working in finance. She began her career in Corporate Banking at Citi, where she supported the global subsidiary banking platform as a Business Manager. In 2017 she moved into a trading role and spent two years market-making SSAs and USD Rates out of London. Izzy joined the RBC HQLA Investment team in 2019 and since has taken up responsibility for trading the USD portfolio out of London and North America, as well as supporting EUR and GBP trading activity.

David Strock SeniorTreasury, HQLA Portfolio. Standard Chartered Bank

David has more than 20 years of experience in financial markets. He began his career in Paris at CCCIF in market risk and proceeded to move to a Treasury Dealer role at Barclays Paris in 2001 and started his current role at Standard Chartered London in 2006 where he is Senior Treasury/HQLA Portfolio Manager. David graduated with a Masters in Economics & Finance from ESCEM France.

Gavin Dredge Managing Director, Senior Portfolio Manager. RenaissanceRe

Gavin Dredge is Managing Director, Senior Portfolio Manager, Investments, reporting to the Chief Investment Officer. He is a member of the Investment Allocation Committee which oversees the strategic and tactical asset allocation of the Investment Portfolio, while also heading up the Internal Portfolio Management team which focuses on Government Bonds and SSA. Prior to joining RenRe in 2009, Gavin spent 14 years at UBS and predecessor firms in numerous credit trading roles, most recently as Executive Director, co-head of Financial Credit Trading and head of Sovereign CDS trading. He has been involved in the SSA market since 1996. Gavin holds a Bachelor of International Commerce with French from University College Dublin.

Grigor Sargsyan Principal Portfolio Manager. World Bank Treasury

Grigor Sargsyan is a principal portfolio manager at the World Bank Treasury with 15 years’ experience in asset management. He is responsible for managing high-grade global fixed income portfolios for World Bank related entities and other official institutions, such as Central Banks and SWFs. Before joining World Bank in 2013, Grigor spent a year as a CFO at Ardshinbank, a local bank in Armenia. Prior to that, he worked at the IMF as an advisor to the Executive Director, and headed international reserves management at the Central Bank of Armenia.

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PRIVATE PLACEMENTS: OPPORTUNITIES, NEW TRENDS AND CHALLENGES

Emilie Wong Head of EMTNs. RBC Capital Markets

Emily has close to 15 years of Capital Markets experience. She joined RBC in September 2015. Prior to RBC, Emilie was Head of Private Placements at ING Bank NV where she set-up and ran globally EMTN vanilla and structured notes’ issuance. Aside of the EMTN business, Emilie was also involved in the financing of SMEs through Debt Capital Issuance.

Emilie also worked for over 5 years for Daiwa Capital Markets where she had various Capital Market roles within DCM and also on the Structured EMTN desk.

Anthony Tien Ruschpler Senior Treasury Specialist. Asian Development Bank (ADB)

Prior to joining the Asian Development Bank, Anthony worked as a Senior Treasury Officer at the African Development Bank (AfDB).

Olivier Chapiteau Capital Markets Funding Officer. European Investment Bank (EIB)

Olivier joined the European Investment Bank in 2012, where he first worked in derivatives risk management and quantitative analysis before moving to capital markets two years ago where he is now in charge of structured product issuances.

Prior to his time at the EIB, Mr. Chapiteau had focused his career on risk management in various institutions in Paris, London and Tokyo, including experiences at Goldman Sachs and Citi.

Stephen J Thompson, CFA Executive Director of Capital Markets. Government of Alberta

Stephen heads the Capital Markets Branch responsible for Alberta’s Global Funding programme, as well as overseeing development of investment strategy and investment policy for the Province’s provincial endowments. Steve is an active volunteer in the field of financial literacy and advocacy for professional standards.

147 | RBC CAPITAL MARKETS This brochure is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. The information contained herein, has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by RBC Capital Markets or any of its businesses or representatives, as to its accuracy, completeness or correctness. This brochure is intended for sophisticated investors and may not be suitable for all individuals. Readers should conduct independent due diligence and not rely on any credit rating or other opinions contained within this document when making an investment decision. Canada, the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. To the full extent permitted by law, neither RBC Capital Markets nor any of its businesses or representatives, accepts any liability whatsoever arising from the use of this brochure. This brochure is not, and under no circumstances should be construed as a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of securities broker or dealer in that jurisdiction. No matter contained in this brochure may be reproduced or copied by any means without the prior consent of RBC Capital Markets. To U.S. Residents: This brochure has been approved by RBC Capital Markets Corporation, which is a U.S. registered broker-dealer and a member of NYSE, FINRA and SIPC; and accepts responsibility for this brochure and its dissemination in the U.S. To Canadian Residents: This brochure has been approved by RBC Dominion Securities Inc., which is a member of IIROC and CIPF. To U.K. Residents: This publication has been approved by Royal Bank of Canada Europe Limited (“RBCEL”), which is authorized and regulated by Financial Services Authority (“FSA”), in connection with its distribution in the United Kingdom. This material is not for distribution in the United Kingdom to retail clients, as defined under the rules of the FSA. RBCEL accepts responsibility for this brochure and its dissemination in the United Kingdom. To Australian Residents: This material has been distributed in Australia by Royal Bank of Canada-Sydney Branch (ABN 86 076 40 880, AFSL 246521). If this material relates to the acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure documents prepared in respect of that product and consider that document before making any decision about whether to acquire the product. To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited and RBC Investment Management (Asia Limited), a licensed corporation under the Securities and Futures Ordinance, or by Royal Bank of Canada, Hong Kong Branch, a registered institution under the Securities and Futures Ordinance. Hong Kong persons wishing to obtain further information or any of the securities mentioned in this publication should contact RBC Investment Services (Asia) Limited or Royal Bank of Canada, Hong Kong Brach at 17/Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong (telephone number is 2848-1388). To Japanese Residents: Securities business (as defined under the Financial Instruments and Exchange Law) in Japan will be carried out by RBC Capital Markets (Japan) Ltd. Tokyo Branch in compliance with all applicable laws and regulations. Banking business (as defined under the Banking Law) in Japan will be carried out by Royal Bank of Canada, Tokyo Branch in compliance with applicable laws and regulations. RBC Capital Markets (Japan) Ltd. Tokyo Branch is a member of the Japan Securities Dealer’s Association (JSDA). To Singapore Residents: This brochure is distributed in Singapore by Royal Bank of Canada and RBC (Asia) Limited, registered entities granted offshore bank status by the Monetary Authority of Singapore Act (Cap. 186).

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