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Outlook 2020


Historic opportunity in bonds

The low-rate environment is the perfect opportunity for issuers to capitalise on cheap long-term funding in the New Year - and investors will favour longer tenors in their hunt for yield.

In 2020, we believe the Asia and Australia bond markets will present issuers and investors alike with an attractive opportunity in a historic low-rate environment.

ANZ is forecasting Asia-ex Japan $US issue volume to increase by 5 per cent in 2020. The Asia ex-Japan $US bonds redemption hit an all-time high in 2019 at $US221 billion, with Chinese bonds representing 67 per cent of the volume.

The key themes in 2020 will be the low-rate environment, geopolitical tensions, green and sustainable bonds as well as a diversification from the $US market into the local currencies including $A.

Capitalise

US Fed policy is currently accommodative to low rate environment - 10-year US Treasuries started at 2.62 per cent at the beginning of 2019 and are below 1.9 per cent in early 2020.

The three rate cuts in 2019 almost completely reversed the hikes that occurred in 2018. We expect rates to be on hold in 2020 and our house view is 10-year US Treasuries will land at 2 per cent.

This global low-rate backdrop has forced investors to not only increase their appetite for longer-dated tenors but also push them down the capital stack to access higher yielding securities.

We expect investors will be more receptive to a variety of different issuers and explore different products some may have been reluctant to be exposed to in the past.

 

Outlook 2020

The New Year is upon us. The year 2020 looms as a landmark one for the global economy as trade, technological and environmental factors drive change at a scale rarely seen.

At ANZ Institutional, we aim to help our customers put themselves in the best possible position to take advantage of these forces. Our subject-matter experts have the insight to offer market-leading thought leadership in a range of complex areas from across more than 30 global markets.

We asked our experts about the key factors they see shaping markets and industry in 2020 – and the opportunities and challenges within. We’ll be sharing the responses with you over the coming weeks.

 

New norm

In 2020, a number of ongoing political tensions will continue, including those around the US presidential elections, the European Central Bank’s change of guard, Brexit, US-China trade tensions, North Korea, Middle East and Hong Kong’s political deadlock. These events are likely to increase volatility in the financial markets.

These tensions - especially around trade talks, including those between the US and China - are largely accepted by the market as a new norm.

The US presidential vote will be the crucial event to look out for. Spreads in the market are largely driven by liquidity and we will advise our clients to issue earlier in the year when liquidity tends to be the strongest.

Going green

Global sustainable debt has passed the $US1 trillion threshold and issuance of sustainability bonds almost doubled in 2019.

Sustainable bonds have been viewed as a good alternative to investment-grade bonds as they are usually in a more-conservative sector and risk profile.

Investors can enjoy the benefits of sustainable bonds as they are innovative, forward-looking and allow investors to participate in the reduction of ESG risk such as climate risk. Sustainable bonds are also viewed as a diversification tool for already mature and frequent issuers.

We expect sustainable bonds continue to benefit from overwhelming demand from investors compared to supply and continued interest from issuers to utilise the broader use of the proceeds to potentially fund both green and social projects.

Paul White is Head of Capital Markets and Jimmy Choi is co-Head of Capital Markets at ANZ

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