Fixed Income Pulse: LSEG Debt Capital Markets Forum 2020 roundup
London Stock Exchange held its second annual Debt Capital Market’s Forum on Monday 21 September 2020, organised in partnership with Barclays. More than 140 delegates live-streamed and participated in the event via London Stock Exchange’s dedicated service for digital presentations and events – SPARK LIVE. This edition of our Fixed Income Pulse summarises the Forum’s discussions for those that couldn’t join the livestream and those who would like to re-watch some of the day’s presentations.
Murray Roos, Group Head of Capital Markets, London Stock Exchange Group, reinforced LSEG’s commitment to providing a resilient infrastructure for the debt capital markets. In the first half of 2020, $360bn in bond proceeds – including more than $50bn by COVID-19 response bonds – had been issued on London’s markets. This represents 80% of total issuance in 2019. The debt capital markets have been a “central source of liquidity” in these unprecedented times.
Michael Metcalfe, Head of Macro Research at State Street Global Advisors, described how the markets had functioned “remarkably well” in the face of the impact of the COVID-19 pandemic. He said that central authorities had responded with “flexibility, haste and scale to mitigate the collapse in output and to ensure that economies could restart” and that monetary policy would remain “extremely accommodating.” Policy makers, he said, had “built a bridge across the chasm and investors, issuers and consumers are walking across it,” but there are risks in 2021 of greater unemployment and slowing income growth. Ultimately, he argued, investors have to keep faith in policy makers, who have made financial markets part of the solution to a recovery.
Darko Hajdukovic, Head of Multi-Asset Primary Markets and Investment Funds, London Stock Exchange, introduced the first panel to review the impact of COVID-19 on the economic landscape and the need for issuers to access funding, along with the political backdrop and themes for 2021.
- Salman Ahmed, Global Head of Macro and Strategic Allocation, Fidelity Investments
- Martin Duffell, Head of Dealing, UK Debt Management Office,
- Tina Fordham, Partner and Head of Global Political Strategy, Avonhurst
- Matthew Tobin, Partner, Slaughter & May
The panellists noted how monetary policy authorities had directly supported the corporate bond market even, for the first time, in the US. This had been an important support factor. There had been level of corporate issuance from the outset of the COVID-19 pandemic, which included some corporates who had not come to the market before, and that models were evolving rapidly to address issues around audit and disclosure.
The intensification of the UK Government auctions and syndications operations was described, with its current aim to raise £385bn in government debt by the end of November 2020. Incentives such as increasing the size of its post-auction option facilities had been deployed.
The panellists discussed new products which had emerged such as the German government’s green bond twinning, as well as the EU itself becoming a “significant” new borrower particularly through green bonds.
The panellists also said that there was “a real push” for a more regulated environment, so this is an area to watch closely.
Developments in Sustainable Finance and the Transition Developments in 2020
In an opening presentation, Yo Takatsuki, AXA Investment Managers, Head of ESG Research and Active Ownership Co-Chair of the Climate Transition Finance Working Group under the Green Bond Principles, ICMA, outlined the challenge of decarbonisation and how the transition to net zero by 2050 will see “disruptive shifts” in the way the global economy operates and behaves. This will lead to much innovation in the development of transition bonds.
The following panel discussion was moderated by Elena Chimonides, Product Manager, Multi- Asset Primary Markets, London Stock Exchange.
- Isabelle Laurent, European Bank for Reconstruction and Development, Treasurer and Head of Funding
- Susan Barron, Barclays, Managing Director - Global Head of Green and Sustainable Capital Markets
- Yo Takatsuki, AXA Investment Managers, Head of ESG Research and Active Ownership Co-Chair of the Climate Transition Finance Working Group under the Green Bond Principles, ICMA
The panel agreed on the importance of appropriate financial instruments for climate transition finance and the role of the EU Taxonomy. In a discussion on ESG issues, they touched on product innovations such as COVID-19 specific financing, dedicated social bonds, and the increased issuance in sustainability-linked bonds in response to ICMA principles. Another theme of the conversation was around the uniformity of data around ESG metrics, and the need for more dialogue and consideration on which factors are material for different sectors.
The end of LIBOR: Risks and Opportunities
Andy Ross, CEO, Curve Global Limited led the panel focusing on the sterling market and how it has advanced in its transition to SONIA and the challenges that remain.
- Andreas Giannopoulos, Head of Benchmark Interest Rates Governance, Barclays
- Peter Green, Head of Senior Funding & Covered Bonds - Capital Markets Issuance, Lloyds Bank
- Scott Harman, Head of Product, FTSE Russell
- David Horner, Head of In-Business Risk, Rates & FX Derivatives, LCH
- Katie Kelly, Senior Director, ICMA
The panellists thought that “very good progress” had been made with initiatives, such as the SONIA Index and the maturing market for SONIA trades and swaps.
The challenge of the numerous legacy contracts was raised and the panel noted the determination of the regulators for LIBOR to cease by the end of 2021. It represents a “substantial change in the financial landscape,” said one panellist.
There was discussion about the development of SOFR in the US and the extent of convergence that would take place between conventions across markets and products. The panellists agreed that while market awareness of the transition were good, there was more work to be done.
LSEG is organising a series of webinars exploring the transition away from LIBOR. Join us everyday at 16:30 during the week of 12 October 2020. Click here to register to hear from London Stock Exchange, CurveGlobal, FTSE Russell and LCH about the transition from LIBOR to SONIA through LSEG's unique position across the trading cycle.
Innovation in Debt Capital Markets
Elena Chimonides described the latest enhancements to London Stock Exchange’s Issuer Services portal to enhance the visibility of London listed bonds and enable debt issuers and service providers to create their own profile and customise the way they present themselves.
Shrey Kohli, Director, Head of Debt Capital Markets and Funds, London Stock Exchange, described LSEG Flow, the new innovative tool developed in partnership with Nivaura, which provides an on-demand execution marketplace using LSEG infrastructure. The benefits of Flow were discussed in the final panel discussion.
Fintech: Revolutionising Fixed Income Markets
Moderated by Dr Robert Barnes, Global Head of Primary Markets, London Stock Exchange Group, the panel discussed the next chapter of the digitisation and automation of the debt capital markets.
- Marcus Austin, Global Head of Product Development - Issuer Services, Citi
- Andrew John Paul Hamper, Head of Legal, Fixed Income, Banco Santander
- Aude Rajonson, Global Primary Markets Fixed Income Origination Manager & LSEG Flow, LSEG
- Richard Hay, UK Head of FinTech, Linklaters
- Avtar Sehra, CEO and Chief Product Architect, Nivaura
With debt issuance still largely conducted in traditional fashion with manual processes, the impact of LSEG Flow was described by one panellist as accelerating the process to minutes rather than hours.
Panellists said market participants were focused on those emerging technologies which could address the pain points in business process workflow. One key driver is the innovation of General-purpose Legal Mark-up Language (GLML) which maintains confidence in the legal framework and provides legal validation and assurance even as digital documents are facilitated from the outset of the process.
The advantages of LSEG Flow were described as reducing transaction times and thus creating new added-value opportunities for market participants. It also reduces potential errors and inconsistencies and enables numerous transactions to be executed in parallel, so it is both scalable and highly secure.
The panel discussed the wider adoption of Flow in the debt capital markets - which could happen soon as it and GLML are being adopted for other transactions.
For further information on LSEG Flow please visit our website.
If you would like to participate in a test environment live demo where you can explore the functions of LSEG Flow, please contact us at email@example.com.
To find out more about London Stock Exchange's Debt Capital Markets, contact the Fixed Income team at firstname.lastname@example.org or 0207 797 3921.