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Guidelines for central government debt management 2017
Today the Government adopted guidelines for the management of the central government debt. Its decision means that the maturity of the central government debt is extended slightly. Doing so reduces the risk in the central government debt at a low cost. The steering of the composition of the central government debt is left unchanged.
"The low level of interest rates is keeping central government borrowing costs down at the same time as the risks in the central government debt are being reduced," 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 expected cost and risk in the debt. The underlying analysis for the guideline decisions in both 2016 and 2017 shows that the cost advantage of borrowing in the short term has decreased. By extending the maturity of the nominal krona debt by 0.3 years (measured as duration) the risk in terms of cost variation is reduced at a low cost. As in the present year, the extension of the maturity will be attained by making less use of swaps.
The guidelines decision clarifies that the Debt Office's positions can also be used to reduce the risk in the central government debt. Previously they only stated that positions can be taken to reduce the costs of the central government debt. The mandate for positions in the krona exchange rate is left unchanged at SEK 7.5 billion.
The low level of interest rates means that borrowing in lottery bonds cannot currently contribute to reducing the cost of the central government debt. The guidelines decision extends the target perspective for retail market borrowing so that lottery bond borrowing can be retained, since this form of borrowing is expected to be capable of being profitable again once interest rates rise. To limit the interest expense loss until then the Debt Office should consider not issuing lottery bonds.
Summary of the guidelines for 2017
The maturity of the three types of debt is to be steered towards:
- Foreign currency debt: duration of 0‒1 years
- Inflation-linked krona debt: duration of 6-9 years
- Nominal krona debt:
– instruments with a maturity of up to 12 years: duration of 2.9–3.9 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 central government debt is to be steered towards:
- Foreign currency debt: Reduction by up to 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 guidelines decision is the objective adopted by the Riksdag that the central government debt is to be managed so as make the costs as low as possible while taking account of the risk in its management. 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 is evaluated every other year in a government communication to the Riksdag. The next evaluation will be presented to the Riksdag in April 2018.