Mainly unchanged guidelines

Press release 21 September 2005

The Debt Office has today submitted its annual proposed guidelines for the overall management of central government debt. The proposal largely corresponds to the current guidelines. What is new is that the benchmark for the maturity of the nominal debt is to be stated in terms of the average interest-rate refixing period. It is further proposed that the scope for the Debt Office's interest-rate positions be set at a duration of 0.5 years.

The main points of the proposal are:

· The percentage of foreign currency loans in the central government debt is to decrease to 15 per cent in the long term. The benchmark for amortisation of the foreign currency debt during 2006 is to be set at SEK 25 billion.

· The proportion of inflation-linked debt in the central government debt is to increase in the long-term to 20-25 per cent. The pace of increase is to be weighed against the demand trend for inflation-linked bonds and the costs of borrowing in other types of debt taking into account risk.

 · The benchmark for the average interest-rate refixing period in the nominal krona and foreign currency debt is to be set at 3.1 years. This corresponds to the current benchmark of 2.5 years' duration.

· The Debt Office may take interest-rate positions of at most 0.5 years' duration.

The Debt Office recommends that the maturity of the central government debt be unchanged. While there are indications of more durable changes in the relationship between long-term and short-term interest rates, we consider that this is sufficiently uncertain to justify waiting before taking any measures in order to make a more well-grounded assessment of the nature of the changes. An unchanged maturity appears therefore as the best alternative in the current situation.

The foremost reason for the proposal to change maturity measure is that the interest-rate refixing period is a more appropriate instrumental measure for the maturity of central government debt than duration. It is the interest-rate refixing risk that we wish to control by the choice of maturity, i.e. the risk for large fluctuations in the costs of the debt due to it being renewed at unfavourable interest rates. This can be achieved by controlling the composition of short-term and long-term maturity. With a instrumetal measure that is not affected by changes in market rates, our issue plans will also be unaffected by these changes. This means that the structure of short and long maturities will be the same regardless of the interest-rate situation, which is something we aim at with the control system.

The Debt Office's mandate to take interest-rate positions should as before be expressed in terms of duration. The reason for this is that duration is a more appropriate measure of the interest risk in a position, since it is not only a maturity measure but also a measure of how sensitive the position is to interest rate changes (i.e. how much the value of the position changes if the interest rate changes).

The Debt Office's mandate to take interest rate positions should be set at a duration of 0.5 years. This will accordingly formalise the view we have had, entailing that the position scope of the operational management has been outside the risk mandate set by the Government. The active management in foreign currency has been granted a position scope of a duration of 0.2 years for a number of years. In order not to limit this possibility to reduce the costs of central government debt by short-term interest-rate positions, the comprehensive position scope should be set at 0.5 years.

Central government debt shall by law be managed so that the cost is minimised in the long term at the same time as taking into account risk and the requirements of monetary policy. The guidelines for 2006 will be set by the Government at the latest by 15 November.

The board member Ingemar Hansson made a reservation against the decision on the benchmark for the average interest-rate refixing period in the nominal krona and foreign currency debt. He considered that the benchmark should be set at 3.3 years.

For additional information please contact:

Bo Lundgren, Director General, tel: 08-613 46 51

Sara Bergström, Chief Economist, tel: 08-613 47 43

Charlotte Lundberg, Head of Debt Management, tel:08-613 46 47