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Swedish debt office highlights foreign currency demand

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  • Swedish debt office highlights foreign currency demand

SWEDEN - Riksgälden, the Swedish National Debt Office (SNDO), has reported a strong demand for a new foreign currency bond, valued at around SEK 16bn (€1.5bn), the first to be issued by the organisation in two years.

It revealed in its revised budget forecast last week government borrowing would increase more than it had anticipated in the next two years, as the budget deficit is expected to hit SEK 90bn in 2009 and SEK 65bn in 2010.

It confirmed borrowing through Treasury bills (T-Bills), nominal bonds and foreign currency would increase as a result, with the amount of foreign currency bonds expected to triple from the original estimate of SEK 10bn to SEK 30bn for 2009.

The SNDO claimed a successful re-entry into the international capital markets - after a two-year absence following guidelines that foreign currency debt should be cut to 15% - as it issued a three-year Eurodollar bond that expires on 12 March 2012 with a total value of around SEK16bn.

It revealed by the second week of January 2009 it had been offered, "very attractive funding terms", so it decided to take advantage of the positive market sentiment to issue a new large benchmark bond in dollars.

Maria Norström, deputy head of funding at SNDO, said: "We are very pleased with the execution. We saw a strong demand and the bond was broadly distributed among institutional investors worldwide."

The SNDO confirmed the investor base for the new bond resulted in 13% placed with funds and pension funds, 54% with central banks, and 33% with other banks, following a "most positive" market perception.

The pensions industry has meanwhile welcomed plans from the SNDO to introduce a longer duration nominal government bond, expected in the first quarter of 2009.

The SNDO revealed in December it was considering the possibility of issuing a 20-year government bond, maturing on 1 December 2028, as increased borrowing requirements had provided "new scope for issuing loans", while low interest rate levels mean it may prove "rather inexpensive".

Bonds issued by the SNDO currently range in maturity from two to 15 years, but it suggested a 20-year bond would be "long enough to attract investors seeking to extend the time to maturity of their assets", while also fitting in its existing bond structure.

The SNDO last week confirmed part of the increased borrowing requirement outlined in its revised budget forecast "will be covered with the aid of a new nominal government bond with a longer maturity, which we are planning to introduce during the first quarter of 2009 provided that this can take place on reasonable terms".

It had previously pointed out there would need to be "sufficiently large volumes to provide satisfactory liquidity", with an estimated volume of SEK40bn or higher depending on interest, and the SNDO has now confirmed if there is sufficient interest in the product it could be sold alongside the ordinary auctions "every other week".

However, this would not appear to be a problem as Sara Bergstrom, head of financial analysis at the Swedish Premium Pension Authority (PPM), told an investment conference in Amsterdam yesterday the PPM would welcome such a move, since it finds the current lack of long-duration instruments, namely the limited supply of government bonds, as a challenge to its liability-driven investment (LDI) strategy.

The decision to launch longer-term bonds to appeal to institutional investors such as pension funds has already taken place in Denmark, where Nationalbank issued a 30-year bond in November 2008 that was bought by a number of pension funds including ATP. (See earlier IPE article: Schemes snap up Danish 30-year bond)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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