Finland may use over-the-counter derivatives to alter the maturity profile of its EUR60 billion (USD52 billion) portfolio of outstanding debt for the first time. Petri Piippo, senior manager in the debt management office at the State Treasury in Helsinki, said the government is conducting a modeling project to determine the optimal lowest-cost way to manage the portfolio, including through the swaps market.
The sovereign already uses interest-rate swaps on the back of primary issues to convert fixed-rate bond issues into floating-rate liabilities, and uses foreign exchange swaps. But it is also considering using the swaps market for a more aggressive debt management style. The move would follow other European sovereigns, such as France (DW, 1/14), Spain (DW, 11/12), Israel (DW, 2/18) and the Netherlands (DW,1 /14), all of which are planning to or have already begun using derivatives to alter their debt profile.
Once completed, the model will set a duration target and preferred floating-versus-fixed levels that the Treasury will then seek to meet, although it would probably not actively seek to do so until next year, Piippo said. "We have certain risk figures and this is about whether we potentially change the targets, right now we are trying to find out what the optimal duration for us is," he said. The portfolio has an average duration of roughly three years. Piippo declined to speculate on the outcome of the modeling exercise, which he said should be completed in the coming months.