Belgian Debt Agency Considers EUR10-15 Billion FRA Program

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Belgian Debt Agency Considers EUR10-15 Billion FRA Program

The Belgian Debt Agency is likely to enter forward-rate agreements to convert EUR10-15 billion (USD9.5-14.3 billion) of its floating-rate debt into fixed-rate debt next year. Anne Leclercq, head of the front office, said the expectation of higher interest rates in Europe is causing the debt agency to look at this option for its EUR30 billion outstanding floating-rate portfolio. She added that its budgetary needs would also play a role in the decision. Leclercq was speaking at Euromoney's Global Borrowers & Investors Conference at the London Hilton on Wednesday.

The FRAs would be put in place this year, with forward starting dates for issuance throughout 2003, Leclercq said. The agency will probably make its final decision in September when it sets its budget. The agency auctions EUR1-1.5 billion in Treasury certificates weekly, issuing three-month bills each week, while six-and 12-month maturities are issued in alternate weeks. It would enter FRAs on one-third to one-half of this issuance, with matching notional values and maturities. The debt agency would pay fixed and receive floating in the FRAs.

One head of swaps said that winning the business would be extremely competitive and would probably only generate one-half of a basis point spread, but his firm would still want to go after the business. The agency has 16 primary dealers, and uses firms from the group as counterparties for interest-rate swaps, Leclercq said. The group of dealers includes ABN AMRO, Commerzbank and Schroder Salomon Smith Barney. Unlike other sovereign entities that have recently used interest-rate swaps to shorten the average duration of debt portfolios, the Belgian Debt Agency plans to maintain the average duration on its total debt portfolio, which is currently 3.9 years.

 

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