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Repayment of a loan.

Serial bonds issued by the Finnish government may be sold by auction. Auctions involve issuing additional tranches of bonds already issued. The primary dealer banks participate in these auctions, which are held in the electronic Bloomberg Auction System. The auctions are conducted according to the Dutch auction system, meaning that all accepted bids are implemented at the last announced and accepted price.


Bearer security
A security whose owner entitled to receive repayment  is the investor that  happens to possess the bond.

Benchmark bond
A serial bond may achieve benchmark status when certain criteria concerning the volume, liquidity and investor base are fulfilled. The primary dealer banks are committed to maintaining active trading in benchmark bonds on the secondary market.

Bid-to-cover ratio
The bid-to-cover ratio is the amount of bids approved by the State Treasury divided by the amount of total bids submitted.

Book-entry account
An account set up in the book-entry system for storing book entries.  Banks and asset managers administer their clients’ book-entry accounts.

Book-entry type
Securities entered in a book-entry account are known as book entries. A book entry is a security that exists only in electronic form, as opposed to traditional securities that are physical pieces of paper. Bonds issued by the State Treasury are of the book-entry type.

Bullet loan
With a bullet loan, the entire principal of the loan is repaid in one instalment.

The State Treasury may offer investors the opportunity to sell serial bonds back to the government before their maturity date.


Cash management (liquidity management)
The purpose of cash management is to maintain the government’s solvency. Cash assets may be invested, or short-term loans may be sought from the financial market, as the situation may require. The most important instrument for investing cash assets is the triparty repo agreement.

The transfer of the object of a sale from seller to buyer. Clearing of debt securities and serial bonds takes place at Euroclear Finland Oy and in the international clearing houses Euroclear Bank S.A./N.V. and Clearstream Banking S.A.

Coupon rate
The nominal interest rate payable on the principal.

Credit risk
Credit risk (counterparty risk) refers to the possibility of one counterparty to a transaction defaulting on an obligation for instance with regard to repayment of a loan or payment of interest as per agreement. Credit risk may be alleviated by trading with as many counterparties as possible and by demanding security from those parties that the government considers a credit risk.


Derivative (derivative contract)
An investment instrument whose value is based on the value of another security, index, currency, commodity or right, known as the underlying commodity. Options, futures and forward contracts are examples of derivatives. Interest rate swap agreements and currency swap agreements are also derivatives.

Discount instrument
A security with no coupon rate; its yield consists of the difference between the emission price and the nominal amount of the loan. Treasury bills are discount instruments with a maturity of less than one year.


See issue

Euro Medium Term Note programme
A loan programme under which bonds in specific currencies may be issued. The Finnish government is an active EMTN borrower. This programme complements the government’s benchmark bond fundraising.

Exchange rate risk
An exchange rate risk is the risk arising from uncertainty due to exchange rate fluctuations and their impact on future cash flows. Finnish government debt is not exposed to exchange rate risk, as it is hedged with derivative agreements.


Financing risk
The risk that additional funding will not be available when needed or will only be available at disadvantageous terms (high interest rate, short repayment period, etc.).

Fixed interest
A fixed-interest loan has a coupon rate that remains the same throughout the loan period.


Gross borrowing
The central government’s gross borrowing is made up of net borrowing and amortisation of debt carried over from previous years.


Interest rate risk
An interest rate risk is the risk arising from uncertainty due to interest rate fluctuations and their impact on future cash flows.

Interest rate risk position
An interest rate risk position (also known as an interest rate risk profile) describes how various changes in interest rates will affect the value, yield or costs of an investment or debt portfolio. If a portfolio is hedged against interest rate fluctuations, for instance with derivative contracts, its value, yield or costs will not necessarily change even if interest rates rise or fall. In such a case, the interest rate risk position is said to be neutral.

Interest rate sensitivity
The interest rate sensitivity of a position refers to how greatly fluctuations in interest rates affect the value of the position. A position may include an investment, a portfolio, a debt,  revenue or expenditure. In the debt management of the Finnish government, interest rate sensitivity refers specifically to the interest rate sensitivity of the market value of the government’s debt portfolio: for instance, the market value of a fixed-rate loan decreases when interest rates rise. It should be carefully noted which interest rate is being discussed at any given time; for instance, short-term interest rates are different from long-term interest rates, and an item may be sensitive to one and completely immune to the other.

ISIN code (International Securities Identification Number)
An international code assigned to securities to help identify them. In Finland, ISIN codes are assigned by Euroclear Finland.

The issue of a loan is a transaction where the government sells a bond to investors. On the wholesale market, a bond may be issued through a syndicated bond issue or an auction.

Issue price
The issue price of a debt is its sale price at the time of issue.

Issue rate
The price at which bonds are sold at their issue.


From the cash management perspective, liquidity means the government’s solvency. Liquidity may also refer to the secondary market liquidity of a bond, i.e. the potential of an investor to buy or sell large amounts of debt on the secondary market if he so wishes. The primary dealer banks guarantee the liquidity of Finnish government bonds on the secondary market. Liquidity is affected by the amount of debt and secondary market pricing.

Liquidity management (cash management)
The purpose of cash management is to maintain the government’s solvency. Cash assets may be invested, or short-term loans may be sought from the financial market, as the situation may require. The most important instrument for investing cash assets is the triparty repo agreement.


The loan period in years.


Net borrowing
Increase to the government debt over any given period of time.


Operational risk
The possibility of failure of practical funding operations leading to a realisation of loss or exposure to other types of risk. For example, the risk that disruptions in the payment system may lead to delayed payments is an operational risk. Another example is the risk that a disruption in communications prevents the timely receipt of market information and hence prevents trading.

Order book
In a serial bond issue, investors enter their bids in an order book, a compilation of all investor bids. Bids may be submitted by the primary dealer banks at auctions conducted by the State Treasury and by investors in a syndicated issue.


Primary dealer
Government borrowing is carried out through a number of primary dealer banks. The primary dealers participate in syndicated issues as principal organisers and also participate in the State Treasury’s debt auctions. The primary dealers maintain an active secondary market in government benchmark bonds and quote bid and ask prices for benchmark bonds.


Secondary market
After issue, Finnish government serial bonds and Treasury bills are traded on the secondary market. The primary dealer banks undertake to quote bid and ask prices for government benchmark bonds on the secondary market.

Serial bond
A serial bond issued by the State Treasury is a bullet loan with a fixed interest rate in book-entry form. The coupon rate is paid once a year. Serial bonds are specifically intended for major institutional investors on the wholesale market. There may be several issues under the same serial bond.

Settlement is a payment transaction term. The settlement date for Treasury bills is generally T + 2 days (i.e. two business days after the trade date), T + 5 days for new issues of serial bonds and T + 2 days for auctions.  The settlement date is the date on which the amount of debt issued is paid into the government’s account.

Syndicated issue
The State Treasury issues new bonds in syndicated issues. The syndicate banks selected by the State Treasury collect bids from investors, and the bond is sold on the basis of those bids.


Term to maturity
The length of a loan period.

Treasury bill
Treasury bills are discount instruments with a maturity of less than one year. The Finnish government issues Treasury bills denominated in euros and US dollars on day-by-day basis, not at separate auctions.

Triparty repo agreement
The Finnish government uses triparty repo agreements for investment of cash assets in liquidity management. A triparty repo agreement is a securitized short-term investment instrument. The security for these agreements are managed by a third party (triparty agent).


Value date
The relevant date in a process, e.g. the start date for interest calculation or the date on which a securities transaction goes into force.


Yield bonds
Finnish government bonds aimed at retail investors.

Published 2013-03-18 at  14:41 , updated 2015-01-27 at  9:58
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