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Sweden’s debt office is looking into the option of issuing bonds as long as 100 years, but wants more time to research the subject before making a decision, according to its director general, Hans Lindblad.
The comments follow an announcement by the Stockholm-based office that there’s currently “not scope” to issue debt at such maturities. But in an interview on Wednesday, Lindblad said that may change.
The debt office needs to look into the matter “very carefully,” and the upshot is that ultra-long bonds are “still in play,” Lindblad said. “We’ll get back to this.”
Lindblad first indicated in August that his office might expand its offering to add 100-year bonds, as negative interest rates spread across large swaths of the global fixed-income market, making it cheaper to issue. For now, Sweden’s longest-dated bond matures in 2039, and is yielding about 0.3%. Its other debt trades at negative rates, along with more than $13 trillion in fixed-income securities worldwide.
For Sweden, a key consideration that’s shaping its future debt issuance plans is demographic developments. “From a macro perspective, one of the most important factors why we’ve seen these drops in real interest rates in the last 20 years are demographic factors,” Lindblad said.
Another consideration for Sweden is liquidity. Neighboring Finland has already said that’s why it isn’t considering issuing 100-year bonds.
Sweden boasts one of the smallest debt burdens in Europe, at around 35% of gross domestic product. What’s more, almost half its government bonds are currently on the balance sheet of the central bank, as a result of a quantitative easing program launched in 2015.
The liquidity question is “the obvious drawback,” Lindblad said. “But that’s a relatively short-term thing. I think we should approach the issue of a long bond from the macro perspective and look at the long-term savings shifts due to demographic factors.” Those factors should determine whether such a bond should be deemed “cheap, expensive or reasonable,” he said.
“Also, we need to look at the expected demand,” he said. Given that the bond would probably be in Swedish kronor, demand is not expected to be as high as it would be for a bond in euros, Lindblad said. “That’s a currency risk I don’t think one should take on over 100 years.”
Ultimately, the decision will depend on what the analysis shows, Lindblad said.
“There aren’t that many who have done that sort of analysis,” he said. “So we’ll just have to work through it.”