Sovereign bond supply in the eurozone will be record high in 2023. This creates a very competitive issuance environment, where efficient and wide investor diversification, solid funding strategy and stable credit outlook are virtues that will be rewarded.
For this year’s edition, our focus is on energy. We have invited two experts to give their views on the future and security of the Finnish energy transition. Traditionally, Russia has been a major supplier of energy to Finland but now, as part of the EU, Finland has disengaged itself from Russian imports.
Our starting point has not been too far from other European countries. Finland has been dependent on Russian energy, but the good news is, our energy system is diverse, decentralised and resilient. See professor Veli-Pekka Tynkkynen’s assessment (chapter three) of the Finnish “Ruxit” for fascinating insight.
Furthermore, Finland is undoubtedly one of the global forerunners in green energy transition. Moving away from Russian energy will only reinforce this transition. At 42%, the share of energy from renewable sources is already the second highest in EU, and the rapidly growing wind power capacity is turning things even better in the near future by reinforcing the self-sufficiency of Finnish energy production. Director General Riku Huttunen adds further colour in chapter five.
The war that changed the market
In 2022, the Russian invasion of Ukraine has been a serious turning point and a realised global event risk that nobody expected or hoped for. In the beginning of last year, some inflationary pressures were already visible, but the outbreak of war in February and the European dependency on Russian energy turned things complicated. Prices of energy and raw materials rocketed, creating uncertainty around longer-term inflation and growth outlook. Central banks responded to acute price pressures by raising key rates aggressively throughout last year.
Now, European financial markets have witnessed the most rapid rise in bond yields in 40 years. The ultimate cause of market stress has been geopolitical by nature. Higher market volatility reflects concerns related to European energy resiliency and inflation outlook.
European financial markets have witnessed the most rapid rise in bond yields in 40 years. The ultimate cause of market stress has been geopolitical by nature.
At the time of writing, the worst energy price pressures have eased. It seems that Europe has overcome the darkest hours of its energy crisis. However, lots of uncertainty remain and Europe has a long road to resilient and sustainable energy transition.
In 2023, the energy crisis is transmitting into sovereign bond markets via channels of governments’ electricity support to private companies and households. These will be funded by additional debt. Therefore, sovereign bond supply in the eurozone will be record high. By the same token central banks’ quantitative easing (QE) policies are turning into quantitative tapering (QT), which means a gradual reduction of acquired QE assets on monetary authorities’ balance sheets.
This will create a very competitive issuance environment for 2023, where efficient and wide investor diversification, solid funding strategy and stable credit outlook are virtues that will be rewarded. We are confident that stable AA+ rating for the Republic of Finland will continue attract wide variety of investors.
Issuance outlook
The key function of the State Treasury is to safeguard the liquidity and funding for the central government. In 2022, the Republic of Finland successfully fulfilled its EUR 34 billion issuance programme with net borrowing of EUR 13 billion.
The funding strategy of the Republic of Finland remains the same as in 2022 given the similarity in funding amounts.
In 2023, the funding strategy of the Republic of Finland remains the same as in 2022 given the similarity in funding amounts. For 2023, the overall gross borrowing requirement amounts to EUR 38.5 billion. The net borrowing is expected to be EUR 10.4 billion.
Keeping our bonds attractive and creditworthy to investors remains our long-term goal. We believe that Finland’s strong credit outlook and commitment to sound governance and sustainable development will support our bonds and serve all our investors well in the coming years.
