Part of the central government’s funding is in foreign currency bonds. The aim is to reach more investors and ensure good borrowing preparedness. This in turn contributes to lower costs for central government debt over time.
Foreign currency bonds complement the regular borrowing in kronor. The amount being funded in foreign currency depends on the central government’s borrowing requirement. But even when the borrowing requirement is low, the Debt Office keeps issuing some foreign currency bonds in order to stay active in the international market.
Most of the foreign currency bonds have been issued on behalf of the Riksbank to strengthen Sweden’s foreign currency reserves. This on-lending to the Riksbank is financed by the Debt Office issuing bonds earmarked for this purpose.
International presence reinforces borrowing preparedness
Borrowing in the form of foreign currency bonds spreads the underlying funding over more markets, thus broadening the investor base. This is an advantage, especially if the borrowing requirement increases rapidly. Using established channels on the international market, we can borrow large amounts in a short time.
If the Debt Office were instead limited to quickly increasing the supply of government bonds in kronor, the strain on the Swedish market would be greater, resulting in higher interest rates and consequently in higher costs. The possibility of borrowing in foreign currency therefore improves the conditions for keeping the cost of central government debt down in the long term.
Flexibility in terms of timing and volume
The foreign currency bonds are sold through syndication. This means that the Debt Office hires a group of banks, or a syndicate, to carry out the sale. The bonds are publicly marketed and investors are offered to subscribe to purchase the bonds.
One of the benefits of syndication over auctions is that the Debt Office is able to issue large volumes at one time. Syndication also allows for greater flexibility in terms of timing and thereby the chance to adjust the volume and price to demand and current market conditions.
The Debt Office’s foreign currency bonds are issued under a Euro Medium Term Note programme.