In 2016, the Republic of Finland issued two new euro-denominated benchmark bonds and a new USD benchmark bond. In addition, four tap auctions were conducted during the year. Short-term funding was carried out via the Treasury bill programme.
The first euro benchmark issue was a new 10-year euro-denominated benchmark bond due 15 April 2026. The bond was launched on 1 March with an issue size of EUR 4 billion, and an order book of EUR 8.3 billion. More than 110 investors participated in the deal. The demand for the bond was strong with active participation by central banks and official institutions.
The second euro benchmark bond issue of the year was a 7-year maturity, issued on 31 August. The bond is due 15 September 2023, and the size at issue was EUR 3 billion. Even though the bond was issued with a negative yield, the order book grew to EUR 11 billion with bids from more than 90 investors.
In addition to the new lines, outstanding euro benchmarks were tapped in four auctions during the year. The total auctioned volume amounted to EUR 4.5 billion for the year. The first auction in late January was a dual tranche auction of two benchmark bonds, maturing in September 2020 and July 2042. The total auctioned amount was EUR 1.5 billion, bringing the outstanding amounts of the bonds to EUR 6 billion for the 2020 bond and EUR 4.5 billion for the 2042 bond.
The second auction took place on 14 June for the bond launched in March 2016, maturing on 15 April 2026. The auctioned volume was EUR 1 billion, and the outstanding amount of the bond after the auction is EUR 5 billion.
The third auction in October targeted the bond maturing in April 2031. The amount of the auction was EUR 1 billion, raising the total outstanding amount of the bond to EUR 4.5 billion after the auction.
The final auction for the year was conducted in November for the bond maturing in September 2023. The outstanding amount of the bond increased by EUR 1 billion, reaching EUR 4 billion after the auction.
Issuance in different currencies
The EMTN programme enables issuance in currencies other than the euro. A USD benchmark bond is part of the annual funding strategy. In 2016, the dollar benchmark was launched in April, and similar to the previous year, the maturity was three years. The bond matures on 23 April 2019. The order book was strong, and the allocation to central banks and official institutions was record high at 75 per cent. More than 60 investors participated in the transaction. The final issue size of the bond was USD 2 billion, which is on the large side in comparison to previous years. The issue was hedged for currency risk.
New issuance under the EMTN programme also included a SEK 1000 million transaction maturing on 28 January 2021. Additionally, two existing GBP issues were tapped during the year, in February and in May. The taps were for the maturities December 2019 and December 2020, for 100 million and 150 million respectively.
The issuance in foreign currencies complements the euro-denominated borrowing, and makes participation possible also for investors who do not invest in euro-denominated bonds.
The short-term funding vehicle for the Republic of Finland is the Treasury bill programme. The programme is similar to European Commercial Paper programmes, and the T-bills are issued in daily tapping windows during the year, the timing of the issuance depending on the liquidity position of the central government. Finland does not have regular announced auctions of T-bills. The daily tapping window is flexible both for the issuer and the investor, as the government liquidity management can be optimised using this instrument and the continuous availability gives investors flexibility. Treasury bills are issued in two currencies: euros and US dollars.
In 2016, the vast majority of the Treasury bill issuance was USD-denominated. The issuance window was open during four time periods: in January, late May, mid-August and November. The average maturity of the T-bills was 3.7 months (5.4 months in 2015), and the gross volume of the Treasury bill issuance was USD 11.4 billion and EUR 242 million. The outstanding stock at year end was USD 3.65 billion and EUR 172 million.
The liquidity position of the central government remained strong during the year.
In the negative yield market environment it is costly to invest large cash reserves. For this reason, the State Treasury has decreased the amount of cash reserves during 2015 and 2016 in comparison to previous years. Possible short positions are covered with short-term money market loans. The flexibility in the short-term funding is also beneficial in optimising the cash position.
The cash reserves are invested in the short-term maturities. To avoid credit risk, the investments are mainly triparty repo agreements.
Liquidity management relies strongly on the cash flow forecast system. All government accounting entities forecast their income and expenditures for the next 12-month period into the system. The State Treasury is using this data as a basis for liquidity management decisions.