Portfolio management

From the beginning of 2005, the strategic target interest rate risk attaching to debt has been determined using a benchmark portfolio. The State Treasury may diverge from the benchmark portfolio interest risk profile within the limits set by the Ministry of Finance. The benchmark portfolio also allows quantification of the result of government`s operative debt management.

The primary principle of interest risk management is to differentiate interest rate risk management implemented mainly through derivative instruments from funding. The selected benchmark portfolio reflects the target interest rate risk profile of the debt, which at the chosen risk level is intended to minimise the anticipated borrowing cost in the long term. The function of portfolio management is to control the actual debt`s interest rate risk within the set risk limits, determined relative to the benchmark portfolio. Divergence through active measures from the benchmark portfolio`s interest rate risk position is based on investor perception and its aim is a better financial result than that of the benchmark portfolio.

Derivatives are used in portfolio management to modify the debt portfolio interest rate risk position. The debt interest risk status means the average repricing term of the debt portfolio.