Europe's sovereign debt community, namely debt management offices, are increasingly turning to derivatives as a means of managing their duration risk. Jonathan Chenevix-Trench, ISDA board member and managing director and head of European fixed income and global head of interest rates and foreign exchange at Morgan Stanley in London, explained that the phenomena is relatively new with the approach of the agencies differing from traditional users, such as corporates. While corporates focus on individual trades, debt management offices are evaluating their overall portfolio, he noted.
The Agency France Trésor lead the charge into using swaps when it started managing the duration of its debt in March 2001. The French treasury executed EUR17.8 billion (USD20.5 billion) notional of interest-rate swaps to reduce its debt by 28 days in the first six months of using swaps (DW, 1/13). But since then several other treasuries including those of Germany and Spain have shown interest (DW, 11/11/01). In addition, government run agencies, such as the Hellenic Railways Organization, have started looking to the swaps market (DW, 7/6).
