The net borrowing requirement in 2004
The borrowing requirement in 2004 indicates a deficit in central government payments of SEK 68 billion, which is SEK 12 billion more than in the October forecast. The larger borrowing requirement is primarily explained by smaller tax revenues. Owing to a lower rate of wage and salary increases and weaker unemployment, payroll-based taxes will be smaller than we had previously anticipated. In addition, incoming supplementary and back tax payments to date have been smaller than expected. Disbursements for transfer payments and central government consumption are relatively unchanged, compared to the October forecast. However, due to weak employment, disbursements of unemployment benefit will be larger than projected.
The borrowing requirement in 2004 indicates a deficit in central government payments of SEK 68 billion, which is SEK 12 billion more than in the October forecast. The larger borrowing requirement is primarily explained by smaller tax revenues. Owing to a lower rate of wage and salary increases and weaker unemployment, payroll-based taxes will be smaller than we had previously anticipated. In addition, incoming supplementary and back tax payments to date have been smaller than expected. Disbursements for transfer payments and central government consumption are relatively unchanged, compared to the October forecast. However, due to weak employment, disbursements of unemployment benefit will be larger than projected.
Funding
Issue volumes of nominal Treasury bonds will be kept unchanged at SEK 4 billion per auction. A limited reduction in issue volume may be considered early in the autumn. Issue volumes during the autumn will depend on developments during the spring and the forecast for 2004 and 2005 that the Debt Office will publish in June.
A new five-year bond loan will be introduced at the auction on March 10, 2004. On September 1, a new ten-year Treasury bon loan will be introduced. During the year, issues will be allocated relatively evenly between the two-, five-, ten and 17-year loans - with some emphasis on the three longer maturities. The Debt Office will carry out interest rate swaps at an annual pace of about SEK 30 billion. Most of these will replace borrowing in Treasury bills.
The Debt Office amortises the foreign currency debt at an annual pace of SEK 25 billion. This year, foreign currency borrowing will amount to an estimated SEK 11 billion.
The demand for inflation-linked bonds has remained good during 2004. During 2003, the Debt Office issued nearly SEK 20 billion worth of such bonds. The Debt Office estimates that there will be continued prerequisites for issuing inflation-linked bonds at about the same pace.
Inflation-linked bonds - an instrument for risk diversification
Inflation-linked bonds are known primarily as an instrument that makes it possible to manage inflation risk. However, knowledge of the portfolio characteristics of inflation-linked bonds is not as widespread. There are several studies that deal with this topic, based on data from the US, the UK and France. The Debt Office has carried out portfolio studies based on Swedish data. According to the article a portfolio of equities and nominal bonds that is supplemented with inflation-linked bonds provides a higher expected return at the same risk level as a portfolio only containing equities and nominal bonds. Conversely, the same expected return can be achieved with lower risk-taking if inflation-linked bonds are included in the portfolio. This is mainly because they have a low correlation with other asset classes, which makes it possible to diversify away risk.
Inflation-linked bonds are known primarily as an instrument that makes it possible to manage inflation risk. However, knowledge of the portfolio characteristics of inflation-linked bonds is not as widespread. There are several studies that deal with this topic, based on data from the US, the UK and France. The Debt Office has carried out portfolio studies based on Swedish data. According to the article a portfolio of equities and nominal bonds that is supplemented with inflation-linked bonds provides a higher expected return at the same risk level as a portfolio only containing equities and nominal bonds. Conversely, the same expected return can be achieved with lower risk-taking if inflation-linked bonds are included in the portfolio. This is mainly because they have a low correlation with other asset classes, which makes it possible to diversify away risk.
The Swedish National Debt Office is holding a press conference today, February 25, at 10.30 a.m. at Norrlandsgatan 15, Stockholm.
For further information, please contact:
Thomas Franzén, Director General,
telephone +46-8-613 46 51
Thomas Olofsson (funding),
telephone +46-8-613 47 82
Gunnar Forsling (borrowing requirement),
telephone +46-8-613 45 35
The report Central Government Borrowing -Forecast and Analysis 2004:1 can also be ordered on tel: +46 8 613 46 55
