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Guidelines for central government debt management 2016
Today the Government adopted guidelines for the management of the central government debt. The decision means a slight extension of the maturity of the central government debt; the background is that the cost advantage of short-term borrowing has decreased. Longer maturity results in less variation in the cost of the debt.
”By extending the maturity of the central government debt, risks can be reduced at a low or no cost since the cost difference between short-term and long-term borrowing is less than before,” says Minister for Financial Markets and Consumer Affairs Per Bolund.
The maturity of the central government debt is one of several factors that affect the debt’s expected cost and risk. The analysis on which the guideline decision is based indicates that it will continue to be advantageous to keep the maturity of the debt relatively short. However, the maturity of the part of the central government debt that consists of nominal borrowing in Swedish kronor is extended by three months and the maturity of the part that consists of foreign currency borrowing is extended by four and a half months (measured as duration). This extension of maturity means that the risk in terms of cost variation decreases.
The degree of flexibility in maturity steering is increased at the same time by widening the maturity interval for the nominal krona debt from 0.5 years to 1 year and by a maturity interval of one year replacing the previous maturity benchmark for the foreign currency debt.
Implementation of the decision
The Debt Office intends to achieve the extension of the nominal krona debt by drawing down the volume of interest rate swaps currently used to shorten maturity. This means that the underlying borrowing and the policy for it are not affected by this extension.
This more flexible steering makes it possible for the Debt Office to avoid unnecessary transaction costs and is justified on purely operational grounds.
Summary of the guidelines for 2016:
The maturity of the three types of debt is to be steered towards:
Foreign currency debt: duration 0‒1 years
Inflation-linked krona debt: duration 6-9 years
Nominal krona debt:
– instruments with a maturity of up to 12 years: duration 2.6-3.6 years
– instruments with a maturity of more than 12 years: long-term benchmark for the outstanding volume of SEK 70 billion.
The composition of the debt is to be steered towards:
Foreign currency debt: Reduction of no more than SEK 30 billion per year
Inflation-linked krona debt: 20 per cent (in the long term)
The nominal krona debt is to make up the remaining share.
The basis for the Government’s guideline decision is the objective, adopted by the Riksdag (the Swedish Parliament), that central government debt shall be managed in such a way as to make the costs as low as possible while taking account of the risk in the management of the debt. The Debt Office is responsible for borrowing and management being conducted within the framework of the guidelines and in accordance with the objective.
Central government borrowing and debt management are evaluated every other year in a government communication to the Riksdag. The next evaluation will be submitted to the Riksdag in April 2016.