Questions about the demand for long-dated bonds

News 29 November 2011

The Debt Office will issue a larger volume of long-dated bonds than we announced in our forecast in October. We therefore need to assess the demand for long-dated bonds and receive feedback on terms for issuance.

Long-dated bonds

The Government has decided that for maturities over 12 years in nominal krona bonds the benchmark for outstanding volume is to be SEK 60 billion. The stock of long-dated nominal bonds consists of only loan 1053 today, and amounts to just over SEK 40 billion. The new benchmark leads us to increase the stock of long-dated bonds gradually. At the same time it is important to build up volume and liquidity in the 10-year benchmark loan 1054. Since the borrowing requirement is limited we will primarily achieve this through exchange or buy-back auctions to enable larger issuance in maturities exceeding 12 years.

Our prerequisite is that the stock of long-dated bonds will increase in a pace feasible to demand in order to limit the impact on market rates. We welcome feedback on how and in what pace we can best increase our funding in long-dated maturities. There are a number of issues to consider, such as:

• Demand. How strong is demand? Which volumes are reasonable with limited impact on pricing?
• Maturities. Is there demand for a 20 year government bond? Parallel to the inflation-linked bond 3104, or is it better to just to issue the bond 1053?
• Terms of issuance. Auctions with switches involving shorter bonds are a possibility. Alternatively we can carry out buy-backs later financed with issues in the form of auctions. We could possibly consider on-tap sales quoting prices at request. In this case we need to carry out buy-backs which will set a limit for issuance volumes.

New long inflation-linked bond

We also welcome comments and views on our plan to introduce a new 30-year real bond. We have had indications that there is demand for an inflation-linked bond matching the maturity of the nominal bond 1053. However, it is difficult to assess demand for such a long maturity. It would probably be the case that the bond would have a smaller outstanding volume and hence a more limited liquidity compared to other inflation-linked bonds.

Views could be send to Anna Sjulander, phone +46 8 613 47 77, anna.sjulander@riksgalden.se at the latest Friday 9 December 2011.