The Ministry of Finance will start using interest rate swaps in the Kingdom’s domestic debt management. This will increase the flexibility to adjust the interest rate exposure of the debt portfolio without changing the borrowing strategy. Norges Bank (the central bank) will act as trading desk for the Ministry of Finance as regarding swap transactions in Norwegian kroner.

The Ministry of Finance has decided to use interest rates swaps in the management of the Kingdom’s domestic debt portfolio, as reported to Stortinget (Parliament) in November 2004 (confer St.pr. nr 1 tillegg nr. 7 Om fullmakt til å ta opp statslån mv., og om salderingen av statsbudsjettet for 2005) (Norwegian version available here). The Kingdom has previously made use of interest rate and currency swaps in the management of foreign debt.

The Ministry of Finance has signed ISDA Master Agreements, including collateral agreements, with a number of relevant counterparties in the NOK swap market. Norges Bank will, on behalf of the Ministry of Finance, have the operational responsibility for entering into swap transactions for the Kingdom. The commercial decisions will be made by the Ministry of Finance.

A prudent strategy has been laid out, especially in the initial phase, to ensure that effects on the market prices are limited. The Kingdom will not enter into swap transactions in the period from seven workdays prior to a monetary policy meeting in Norges Bank, including the day of the announcement by the Executive Board.

An interest rate swap is an agreement between two parties to exchange interest payment on a given principal over a fixed period. In principle, use of interest rate swaps makes it possible to separate management of interest rate risk from the choice of borrowing instruments. Hence, the use of interest rates swaps will increase the flexibility to change duration without changing the borrowing strategy. About 70 per cent of government debt outstanding consists of bonds with long duration, whereas the remaining debt has a shorter duration. The Ministry of Finance assesses the duration on the domestic debt to be somewhat long compared to the duration on central government interest-bearing domestic assets.

Contacts:
Ministry of Finance: Halvor Hvideberg, Debt Management Office, telephone +47 22 24 44 84 / mobile +47 48 09 97 13.
Norges Bank: Asbjørn Fidjestøl, Department for Market Operations and Analyses, telephone +47 22 31 61 78