Borrowing Strategy in Volatile Times

Pr Nygren Deputy Director General Swedish National Debt Office Asian Regional Public Debt Management Forum Phuket, Thailand, 16-18 March 2011

Borrowing Strategy Affected by the Crisis?

Common pillars in borrowing strategies
Cost minimization with regard to risk Predictability Diversification

Has the financial crisis changed this?

Outline of Presentation
1) Economic and financial environment as backdrop 2) Some activities by the SNDO since the fall of 2008 3) Potential conclusions regarding the three pillars

Economic and Financial Environment

Central government budget from a EUR 15 billion surplus in 2008 to a EUR 20 billion deficit in 2009 3-month rates down from 5% to 1% and 5-year rates down from 4% to 2% in six months (after Lehman) SEK/USD depreciated 40% in six months (now stronger than before the crisis) Budget in balance 2010 and in surplus 2011 and 2012
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Activities by the SNDO

Extra auctions in T-Bills (Sep-08) CP-program as part of cash management (Dec-08) Increased FX-funding and decreased swap-funding (Jan-09) Syndication of a 30-year domestic bond (Mar-09) On-lending to the central bank (May-09) Positions in USD/EUR (2008/09) and SEK/EUR (2009/10)
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Cost Minimization?
The 30-year bond and the foreign currency bonds were primarily used as precautionary funding (after redemption we will see if it was at a higher cost) A change of balance between cost and (refinancing) risk, but not to the extent that cost minimization with regard to risk has changed to the opposite A smaller debt may allow higher risk, but external factors and degree of uncertanty plays a significant role

Predictability?
The extra-auctions: Liquidity support is not a debt management activity (although it was initiated as a market support meassure) The FX (and swaps), the 30-year bond, the CP-program and the strategic positions were due to extraordinary circumstances Predictability is condition-dependent and has a significantly shorter time horizon in volatile times A tendency to underestimate the dynamics in budget shifts undermines the possibility to be predictable
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Diversification?
After an initial (and passing) increase in diversification (FX, 30Y, CP), a strong government budget and corresponding low borrowing requirements have lead to a need for concentration to the domestic nominal market A diversified investor base (increasingly more) important (information on web, road shows, etc) The prerequisites, as well as need, for diversification are dependent on not only borrowing requirements but also the absolute and relative size of debt
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