Government bonds are given priority in the proposal for Guidelines for 2012-2014

29 September 2011 - Press release

The Swedish National Debt Office proposes a more flexible governance of the nominal krona debt as the target is stated as an interval rather than a point value. In the proposal for Guidelines we have, on commission from the Government, analysed how time to maturity and debt shares should be treated in a scenario with substantially smaller and larger government debt respectively.

Our conclusion from the analysis of a smaller debt is that government bonds should be given priority and that there may be good reasons for having a certain lower bound for borrowing in nominal government bonds. During periods with small borrowing requirements this could imply excess borrowing.

More efficient management with a maturity interval target

The Debt Office proposes that the time to maturity of the nominal government debt shall be steered by a target interval instead of an exact point value. When the borrowing requirement is small, a steering that is too tight risks becoming inefficient and costly. As the borrowing volume in comparison to the outstanding debt issues will have a small effect on the composition of the debt. Unexpected deviations from the forecast of the borrowing requirement will also have a larger impact on the total average time to maturity.

The Debt Office proposes the following guidelines for the maturity of the government debt:

  • The time to maturity of the nominal krona debt for maturities up to 12 years should be between 2.7 and 3.2 years 

  • The outstanding volume of instruments with maturities longer than 12 years should at most be SEK 65 bn 

  • The maturity of the foreign currency debt should be 0.125 years 

  • The maturity of the inflation-linked debt should be between 7 and 10 years 

We propose no changes of the composition of the government debt. The composition will then remain 60 per cent nominal krona debt, 15 per cent currency debt and 25 per cent inflation-linked debt.

Minimum levels of government bond borrowing to ensure good liquidity

The conclusions of the analysis of a smaller government debt are that the commission by the government should be widened to a broader discussion of which measures such a development can justify. The experiences of the crisis points to the importance of preserving infrastructure, liquidity and investor base in our most important markets. Accordingly, there could be good reasons to have a certain minimum amount of borrowing in the nominal bond market. The proposed commission concerns the possibility of borrowing more than actually needed to finance the budget balance and other current payments in situations when the government bond debt runs the risk of being too small to maintain appropriate preparedness for, if any, future crisis.

The Debt Office assesses that the surplus from such extra borrowing could be invested with low risk and yet yield a return that would be enough to cover the cost of the borrowing. The option to keep a certain yearly borrowing volume should constitute a cheap insurance against the risk that liquidity and infrastructure deteriorate. Furthermore, the asset portfolio can function as a buffer and provide a certain protection in the short run during, if any, future crises.

In a shorter perspective the Debt Office can defend liquidity in the government bond market inter alia by exchanges and focus on our most trades maturities and reduce or cease borrowing in other debt classes.

 

For more information, please contact

Bo Lundgren, Director General, +46 8 613 45 00

Thomas Olofsson, Head of Debt Management, +46 8 613 47 82

 

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Proposed guidelines for central government debt management 2012-2014