3. Kingdom of Sweden
Swedish National Debt Office
STRONG CREDIT OUTSIDE EUROLAND
Bo Lundgren, Director General
Tokyo, May, 2012
3 2012-05-07 Investor presentation
4. Our assignments
We are a public authority responsible to the Ministry of
Finance. The Government appoints our board and our
Director General. The Debt Office was established in 1789.
â˘âŻ Providing banking services for the central government
â˘âŻ Raising loans and managing central government debt
both in the institutional and the retail market
â˘âŻ Providing state guarantees and loans
â˘âŻ Being responsible for the deposit insurance and
investor protection schemes
â˘âŻ Managing government support for banks.
4 2012-05-07 Investor presentation
5. Objective of our debt management
The overall objective of the Debt
Office is to minimize the long-term
costs of central government
financial management without
taking excessive risks. Our work
helps to ensure that taxpayersâ
money is used as efficiently as
possible and that the financial
system remains stable.
5 2012-05-07 Investor presentation
8. A safe haven for government bonds
â˘âŻ Government finances among the strongest in the world and will remain so
â˘âŻ Growth one of the strongest in Europe 2009 and 2010. For 2012 and 2013
we assess a growth of around 1 and 3 per cent respectively
â˘âŻ Debt to GDP close to 30 per cent
â˘âŻ Budget will remain in surplus in spite of the more gloomy global outlook
â˘âŻ Dollar and euro bonds issued, but only for on-lending to the central bankâs
foreign exchange reserve
â˘âŻ New investors continuously entering the Swedish government bond market
â˘âŻ Effects of future regulations uncertain but could likely increase bank demand
for bonds
8 2012-05-07 Investor presentation
9. A safe haven for government bonds contâ
â˘âŻ Liquidity in the government bond market is extraordinary compared to its size
â˘âŻ Open market even during the crisis
â˘âŻ Liquidity is supported by the Debt Office security lending commitment
(repo facility)
â˘âŻ The Debt Office gives priority to bonds over other instruments to support
liquidity
â˘âŻ The Swedish currency is among the top 10 most traded
â˘âŻ So far the krona has been surprisingly strong compared with historical
turbulences
â˘âŻ Gradual increase of longer bonds. A new 20 year bond was syndicated
through a switch in March 2012
9 2012-05-07 Investor presentation
10. Governance of debt management
â˘âŻ The Debt Office decides inde-
pendently on debt
management policy and
funding within yearly guidelines
from the Government
â˘âŻ Guidelines are basically
general and set targets for
allocation of the debt between
different debt classes and time
to maturity for each class
â˘âŻ Guidelines are based on a
proposal from the Debt Office
â˘âŻ Management and Guidelines
are evaluated every second
year by the Parliament
10 2012-05-07 Investor presentation
11. Reforms to increase stability and growth
Reforms on monetary and fiscal policy frameworks together with deregulations
and pension reforms have created a stable economic and budgetary enviroment.
â˘âŻ Medium-term budgetary framework
ââŻBudgetary framework established in 1997 and strengthened in 2011 âŚ
ââŻ...targeting an average surplus of 1 per cent of GDP for the general Government
over the business cycle with close monitoring of spending ...
ââŻ... ceiling for government spending decided each year in advance by the Parliament
â˘âŻ The Swedish central bank â The Riksbank â has
an independent standing with a price stability objective
11 2012-05-07 Investor presentation
12. Reforms to increase stability and growth contâ
â˘âŻ Pension reform established
ââŻPensions now linked to life-long income
ââŻDefined contributions as a complement
ââŻThe new system is robust to changes in overall income growth and demographics
â˘âŻ Deregulation of product markets
ââŻTelecom
ââŻTransportation
ââŻElectricity
ââŻLabour market reform
12 2012-05-07 Investor presentation
13. Future financing projections
In addition to our proposal for Guidelines for Central Government debt
manage-ment, we presented an analysis on the implications of declining
government debt:
â˘âŻ On liquiditiy, infrastructure and readiness to borrow in a crisis scenario
â˘âŻ Priorities between our different debt classes and instruments
â˘âŻ Funding in excess of our borrowing requirement to support market presence
Despite weaker growth, the central government budget will largely be in balance
in 2012 and 2013. No austerity packages needed and monetary policy can be
adjusted to domestic conditions
13 2012-05-07 Investor presentation
14. Funding plans
â˘âŻ Focus on 10 year nominal bonds to defend liquidity and infrastructure
â˘âŻ Gradual increase of long-dated bonds
â˘âŻ Issues in foreign currency to rollover on-lending to the central bankâs foreign
exchange reserve
â˘âŻ Symbolic presence in the inflation-linked market
â˘âŻ T-bill borrowing increases somewhat within the liquidity management
framework
14 2012-05-07 Investor presentation
15. Debt around 30 per cent of GDP
Central Government Debt SEK 1,143 bn at the close of 2012 or 32.8 per cent
of GDP. Including on-lending to the central bank, the debt would be SEK 1,024 bn
or some 29.4 per cent of GDP.
SEK billion Per cent of GDP
1 400 60
1 300 50
1 200 40
1 100 30
1 000 20
900 10
800 0
Central Govt Debt Incl. assets Central Govt debt, % Incl. assets, %
15 2012-05-07 Investor presentation
16. Debt portfolio structure, SEK mn
â˘âŻ Bonds are the core of our Government bonds 558,510
government debt, close to 80 %
â⯠Government bonds 191,833
â⯠Inflation-linked bonds Public bonds, foreign currencies 108,593
â⯠Foreign currency bonds
T-bills 83,066
â˘âŻ T-bills are partly long-term funding
Retail market 56,790
and partly liquidity management
â˘âŻ Commercial paper are used Collateral 30,129
occasionally as substitute to T-bills Liquidity management 24,477
â˘âŻ Retail market debt, around 5 % Commercial paper 13,805
â˘âŻ On-lending to boost the central
Other capital market debt 4,219
bank foreign exchange reserve
Foreign exchange derivatives â13,626
On-lending â91,349
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16 2012-05-07 Investor presentation
17. 17
2012-05-07 Investor presentation
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18 2012-05-07 Investor presentation
21. Increased bond borrowing
All borrowing, apart from on-lending in foreign currencies to the central bank,
will be focused on nominal government bonds.
SEK billion 2008 2009 2010 2011 2012 2013Â
Net borrowing requirement â135 176 1 â68 11 â3Â
Discrepancy between business and payment date â20 â20 25 11 â9 4Â
Retail market, collateral etc., net â19 4 2 â9 3 7Â
Money market, redempBons 245 111 209 178 159 188Â
Capital market, redempBons, switches and buyâbacks 90 181 38 126 127 42Â
Gross borrowing requirement 161 452 275 238 291 238Â
Money market, gross borrowing 111 209 178 159 188 148Â
Capital market, gross borrowing 50 243 97 79 103 90Â
     Government bonds 47 110 58 41 50 53Â
     InďŹaBonâlinked bonds 3 3 8 6 6 6Â
     Bonds in foreign currencies 0 130 31 31 47 32Â
Borrowing, gross 161 452 275 238 291 238Â
Note: 1 % of GDP is SEK 35 bn.
21 2012-05-07 Investor presentation
22. Unchanged debt
Debt will be more or less stable as Sweden will have a budget balance the
upcoming two years. Debt is approaching 30 per cent.
SEK billion 2008 2009 2010 2011 2012 2013Â
Net borrowing, business day = Change of debt, nominal amounts â155 156 26 â56 2 1Â
A. Nominal amount including money market assets 976 1 131 1 157 1 101 1 103 1 104Â
     InďŹaBon compensaBon 33 30 31 34 32 35Â
     Exchange rate eďŹects 30 0 â26 â19 â17 â16Â
B. Nominal amount to current exchange rate incl. inďŹaNon compensaNon    Â
     and money market assets 1 038 1 161 1 162 1 116 1 118 1 122Â
     Money market assets 91 37 26 42 25 25Â
C. Central government debt 1 129 1 197 1 188 1 158 1 143 1 147Â
     Money market assets â91 â37 â26 â42 â25 â25Â
     Onâlending â94 â86 â91 â94 â95Â
D. Central government debt incl. onâlending and money market assets 1 038 1 067 1 075 1 025 1 024 1 028Â
Nominal GDP 3 204 3 089 3 306 3 474 3 486 3 589Â
C. Central government debt, % of GDP 35,2 38,8 35,9 33,3 32,8 32,0Â
D. Central government debt incl. onâlending and money market Â
     assets, % of GDP 32,4 34,5 32,5 29,5 29,4 28,6Â
22 2012-05-07 Investor presentation
24. Strong public finances
â˘âŻ According to the OECD, the General Government net lending will be â0.6 per cent of GDP compared
to â4.6 per cent average for the Euro Zone in 2011
â˘âŻ Our own assessment of General Government net lending for 2011 is a surplus of 0.6 per cent of GDP
or some SEK 20 bn. General Government debt will be around 35 per cent of GDP
â˘âŻ Medium-term budgetary framework
â⯠⌠targeting an average surplus of 1per cent of GDP for the general Government over the business cycle and a ceiling
for government spending decided each year in advance by the Parliament
â⯠commitment from both the current government and the Social Democrats
General Government Debt, % of GDP 2011 General Government Net Lending, % of GDP 2011
24 2012-05-07 Investor presentation
25. Broad investor base
â˘âŻ Around 40 % of government Percent
60
(nominal and inflation-linked)
bonds are owned by foreign 50
investors
40
â˘âŻ About 40 % of total
government debt is owned by 30
foreign investors assuming
that foreign currency debt is 20
owned solely by foreigners
10
â˘âŻ The Kingdom of Swedenâs
investor base has a core of 0
2006 2008 2010 2012
some 25 domestic investors,
but is essentially international - T-bills, %
comprising investors in UK,
Euroland, Asia and US
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26. Swedish yields reflect scarcity and AAA quality
â˘âŻ Swedish government bonds Yield spreads to German 10-year bonds
are benchmarks in the SEK
Percent
fixed income market 500
â˘âŻ Sweden has its own currency
400
and central bank; gaining by
the turbulence as a safe haven 300
â˘âŻ Limited supply of bonds
200
advantageous for Swedish
yields 100
â˘âŻ In February 2012 our central
bank cut the repo rate by 25 0
bp to 1.50 per cent. The
â100
market expects the Riksbank Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May
to continue lowering rates. 2007 2008 2009 2010 2011 2012
26 2012-05-07 Investor presentation
27. Unemployment rising and becoming entrenched
The NIER assessment:
â˘âŻ âThrough increased uncertainty GDP growth, quarterly figures, Sweden
and weak exports, Sweden is
being negatively affected by the
government debt crisis in
Europe. The year 2012 will thus
be one of lackluster growth.
Absence of progress toward
solutions for the crisis-ridden
countries of the euro area is
unnecessarily delaying
recovery. There will be lasting
negative effects on the Swedish
economy as well, partly from
many years of high GDP growth, seasonally adjusted, q/q
GDP growth, calendar adjusted, y/y
unemployment.â
27 2012-05-07 Investor presentation
28. Swedish exports â regional distribution
Export is geografically concentrated
to northen Europe â the economic strongholds.
Norway 10%
â˘âŻ Our main export countries are All other countries 19%
â˘âŻ Norway Germany 10%
â˘âŻ Germany
Brazil 1%
â˘âŻ UK Saudi Arabia 1%
India 1%
â˘âŻ United States Turkey 1%
Japan 1%
United Kingdom 7%
â˘âŻ Denmark Australia 1%
Russia 2%
â˘âŻ Finland Spain 2%
Poland 3% United States 7%
â˘âŻ Netherlands
Italy 3%
â˘âŻ France
China 3% Denmark 7%
â˘âŻ ⌠exports to these countries are Belgium 4%
Finland 6%
close to 60 per cent of the total France 5%
Netherlands 5%
â˘âŻ Europe receives almost 70 per cent of our export
28 2012-05-07 Investor presentation
29. Underlying inflation around 1 per cent
The headline inflation is around 2 per cent and the underlying inflation measured
with fixed interest rates is around 1 per cent.
Swedish inflation
29 2012-05-07 Investor presentation
30. Labour market
â˘âŻ Faster than expected reduction in unemployment until now,
but could be leveling out going forward
Unemployment Employment
Percent Person, millions
30 2012-05-07 Investor presentation
31. Surprisingly strong Krona during this turmoil
â˘âŻ A ânormalâ exchange rate versus the
euro has historically been 8.90-9.40
â˘âŻ During global financial turbulence and
lack of export demand, the krona
typically weakens
â˘âŻ The tensions in the Euro area, strong
budget outlook and signals of
monetary tightening supports the
krona
â˘âŻ Pick up in exports provides krona
support
â˘âŻ SNDO reduces costs by taking
positions in currencies. The SEK 50
billion position for a stronger krona vs. EURSEK USDSEK
the Euro generated a profit of SEK 8
billion
31 2012-05-07 Investor presentation
32. Business confidence
Diffusion index Net balance
32 2012-05-07 Investor presentation
33. Economic tendency indicator
Summary of business and consumer economic sentiment
Net balance
33 2012-05-07 Investor presentation
36. Turnover in the Government bond market
SEK bn
â˘âŻ Customer turnover in nominal bonds 45
average around SEK 30 bn per day 40
â˘âŻ SEK 10 bn spot 35
â˘âŻ Bond stock turned over 5 times a year
30
â˘âŻ Around 50 per cent of spot turnover
comes from foreign investors 25
â˘âŻ Derivative trading (forwards) has 20
trended upwards 15
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Forward Spot
36 2012-05-07 Investor presentation
40. The National Debt Office plays a key role in the Swedish
economy and in the financial market. Our operations contribute towards taxpayersâ money
being used as efficiently as possible and the financial system remaining stable.
Visiting address: Jakobsbergsgatan 13 ⢠Postal address: SE-103 74 Stockholm, Sweden
Telephone: +46 8 613 45 00 ⢠Fax: +46 8 21 21 63 ⢠Email: riksgalden@riksgalden.se ⢠www.riksgalden.se
40 2012-05-07 Investor presentation