Download Prospect for 2008 – New series of eleven

GOVERNMENT
DEBT MANAGEMENT
Prospect for 2008 –
New series of eleven-year Treasury notes
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GOVERNMENT
DEBT MANAGEMENT
Government Debt Management prospect –
emphases in 2008
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Planned Treasury note issuance of 47 b.kr. nominal value.
New benchmark issue of 11-year Treasury notes to be issued on
February 21.
Treasury bill issuance will be discontinued.
Foreign borrowings maturing during the year will be paid up.
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GOVERNMENT
DEBT MANAGEMENT
Declining borrowing need
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Robust central Government finances
– Budget surplus due to privatisation income and economic growth
– 2005: 4.5%; 2006: 5.3%; 2007: 3.7%; 2008: 1.3%
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This surplus can be traced primarily to the recent economic
upswing, income from privatisation, and modest growth in
government spending.
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There is no borrowing need because the Government’s liquidity
position is particularly strong, including around 97 b.kr. on
deposit in the Central Bank.
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GOVERNMENT
DEBT MANAGEMENT
Government debt – low by any standard
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At the end of 2007, Government total debt totalled 302 b.kr., or 23% of GDP.
This is offset by on-lending and CB deposits, leaving a net debt to GDP of
around 3%.
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Foreign debt amounted to 154 b.kr., or almost 51% of total debt.
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The domestic Government debt has been concentrated into a few
benchmarks.
Indexed
Treasury Bonds
5%
Treasury Notes
30%
Foreign longterm borrowing
51%
Treasury Bills
4%
Other domestic
loans
10%
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GOVERNMENT
DEBT MANAGEMENT
The primary purpose of the new issuance is to
promote an active secondary market and to
strenghten price formation of the domestic fixed
income market
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Role of Government securities in domestic market
– Price reference for other financial products
– Long-term investment vehicle
– Safe haven in times of financial instability
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GOVERNMENT
DEBT MANAGEMENT
Description of the new Treasury note RIKB 19 0226
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Maturity February 26, 2019
Built up rapidly through several monthly auctions held in the first half of
the year
Amount for issue in 2008 totals 35 b.kr.
The series is interest-bearing, with interest paid annually on February 26.
The series will feature the same day-count convention and structure as
other Treasury note issues.
Amount for issue on February 21 ranges up to 10 b.kr.
First auction will be held using Dutch auction method
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Single-yield (price) auction, where the issuer gradually increases (lowers) the yield (price)
until a responsive bid is met. Buyers can bid any yield (price) they want, and the Note is sold
at a single yield (price) to all buyers whose bid yield (price) is at or lower (higher) than the
auction-set yield (price). The auction-set yield will be the basis for the annual coupon of the
series. Bids shall be expressed on a yield basis, with two decimal places.
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GOVERNMENT
DEBT MANAGEMENT
Sovereign credit ratings
Affirmed
Foreign
Currency
Domestic
Currency
L/T
S/T
L/T
S/T
Outlook
Moody’s
February
2007
Aaa
P-1
Aaa
P-1
Stable
Standard
& Poor’s
November
A+
A-1
AA
A-1+
Negative
Fitch
March
2007
A+
F1
AA+
2007
Stable
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GOVERNMENT
DEBT MANAGEMENT
Domestic funding – plain and simple
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The Central Bank auctions Treasury notes on a regular basis
according to an auction calendar.
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Seven local banks have been appointed as primary dealers and
have exclusive access to the Treasury’s auctions.
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At each auction, each primary dealer is obligated to submit bids
for a minimum nominal value of 500 m.kr.
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Auctions are held using the Bloomberg Auction System.
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All notes are listed on the OMX ICE and with the Iceland
Securities Depository in dematerialised form. All trades are
reported to OMX ICE in real time.
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An FOP link with Clearstream is in place, with DvP solution
gaining momentum.
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GOVERNMENT
DEBT MANAGEMENT
The Central Bank offers securities lending
facility for the seven primary dealers
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In the process of acting as a market maker, a primary dealer may
be left in a short position.
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To facilitate market making, a primary dealer is entitled to borrow
T-Notes temporarily in exchange for other securities that are held
as collateral.
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Each primary dealer is permitted to borrow T-Notes in each series
for up to 5 b.kr. nominal value.
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The commission for this service is 0.20% a year plus a transaction
fee. The maximum borrowing term permitted is 28 days. Contracts
may then be rolled over.
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Access to borrowing in this series begins February 27.
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GOVERNMENT
DEBT MANAGEMENT
Transparency – sources of information
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The gateways to information about the Icelandic fixed market are
http://www.bonds.is and http://www.lanamal.is
Bloomberg has information on Treasury Securities: Auctions,
yields and bids.
Government Debt Management, a department within the Central
Bank, publishes monthly market information on auctions,
issuance, yield curves, etc.
For further information on auction terms, the description of the
Treasury Notes RIKB 19 0226, and other matters, please contact
one of the following authorized primary dealers: Glitnir, Icebank,
Kaupthing Bank, Landsbanki Islands, MP Investment Bank, Saga
Investment Bank, Straumur Investment Bank.
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