Decreased foreign currency exposure in central government debt

30 September 2014 - Press release

The Swedish National Debt Office proposes a gradual decrease in the foreign currency exposure of central government debt over the coming years. The reason is that the Debt Office has not found sufficient support that foreign currency exposure leads to expected cost savings or lower risk.

The foreign currency exposure is proposed to decrease by a maximum SEK 30 billion per year. In practice, the Debt Office will plan to reduce the exposure by about SEK 20 billion per year. This approximately corresponds to the decrease in foreign currency exposure that would result from maturing derivatives, i.e. without the Debt Office taking active measures.

This rate of decrease is not assessed as having an effect on the SEK exchange rate. By setting a ceiling for the decrease, scope is created for deviations between the actual and the planned reduction. The rate of decrease may be altered depending on what decision is taken in the question of hedging the foreign currency reserve of the Riksbank by entering forward contracts with the Debt Office.

Borrowing in foreign currency is not affected

The proposal above applies to the exposure of the debt in foreign currency and not to its funding. In other words, the proposal does not affect the Debt Office's possibility of borrowing in foreign currency. In order to clarify this, the Debt Office proposes supplementing the guidelines with a point clarifying that the Debt Office is to ensure a broad investor base and the possibility to borrow in different currencies to maintain good borrowing preparedness.

New measures for shares and maturities lead to increased transparency

The Debt Office proposes that the present maturity measure – average interest rate refixing period – is replaced by the measure of duration and that the shares are measured with nominal amounts instead of, as at present, using the measure of consolidated cash flow of the central government debt. The purpose of changing calculation principles is to simplify reporting and make it more transparent.

One consequence of the change of principles is that the Debt Office proposes new benchmarks for maturity and the inflation-linked share. However, this proposal does not entail any change in practice compared with the present composition and maturities.

Central government debt management – proposed guidelines 2015–2018, pdf

For more information, please contact:

Magdalena Belin, Head of Analysis, +46 8 613 52 28