Lánamál ríkisins - Company Announcement

Medium-term Debt Management Strategy 2014-2017

The Ministry of Finance and Economic Affairs has published the government's
Medium-term Debt Management Strategy for the period 2014-2017. This is the
fourth instance of such publication. The principal changes which have been made
since last year's publication concern the guidelines for the composition of the
debt portfolio, which provide for a reduced share of inflation-indexed
borrowing and a correspondingly greater share of non-indexed loans. A change
has also been made to the target for the Treasury's foreign balance with the
Central Bank, reducing it from ISK 80 billion to around ISK 60-70 billion on
average. 

The principal objectives of the government's debt management strategy are:

·         to ensure that the Treasury's financing needs and payment obligations
are met at the lowest possible longer-term cost that is consistent with a
prudent risk policy; 

·         to ensure that the debt repayment profile accords with the Treasury's
longer-term payment capacity; 

·         to maintain and encourage the further development of an efficient
primary and secondary market for domestic Treasury securities; 

·         to attract a diverse group of investors in Treasuries and take
advantage of a variety of funding sources. 

Benchmark Treasury notes series are structured so that each series will be
large enough to ensure effective price formation on the secondary market. Each
year 2Y, 5Y and 10Y benchmark Treasury notes series will be issued. To reduce
refinancing risk, the aim is to make the repayment profile of Treasury
securities as even as possible. Average time to maturity should be at least 4
years. 

Treasury borrowing in foreign currency is used in particular to strengthen the
Central Bank's foreign currency reserves. Regular issuance by the Treasury of
market bonds on foreign markets is envisaged, aimed at attracting a broad
investor base. 

The also strategy reports that the Treasury has engaged an independent
consultant to assess the potential advantages of interest rate swaps, with the
conclusions of the assessment expected this autumn. Another proposed change
will convert the bond issued by the Central Bank of Iceland to a non-indexed
coupon bond with final maturity 2043. This affects the Treasury's repayment
profile and the structure of its debt, as the change boosts the share of
non-indexed borrowing. 

The Ministry of Finance is responsible for the state's debt management,
formulates its financing strategy and makes decisions on securities issuance.
Government Debt Management, a special section within the Central Bank, handles
the implementation of the strategy under an agreement between the Bank and the
Treasury. 



For further information contact Esther Finnbogadóttir, tel. +354 545 9200 or
e-mail esther.finnbogadottir@fjr.is.

Attachments:

Medium_Term_Debt_Management_Strategy_2014_2017_.pdf

Press release2014.pdf