Quarterly Review 1/2020

The State Treasury publishes a quarterly review, which includes information on recent developments in debt management and an outlook for the upcoming quarter.

Outlook for the Finnish economy and public finances

The coronavirus outbreak has greatly affected the economic conditions in Finland. On 16 March 2020, the Government stated, in cooperation with the President of the Republic, that Finland is in a state of emergency owing to the coronavirus outbreak, and on 18 March 2020 the Parliament adopted the decrees on the use of the powers granted by the Emergency Powers Act. The Government has outlined a number of measures aimed at protecting the population and safeguarding the functioning of society and the economy.

On 20 March the Government submitted the first supplementary budget proposal for 2020. It is aimed at covering costs deriving from the need to combat the coronavirus outbreak and on preparedness expenses, as well as other essential and urgent budgetary needs that are directly related to the outbreak, such as securing business financing.

In the negotiations on the General Government Fiscal Plan (government session on spending limits) on 7 April and in the subsequent supplementary budget proposals for 2020, the Government will also assess the need for additional appropriations directly caused by the coronavirus and for measures to support the economy more broadly. The Government is monitoring the state of local government finances and, if necessary, will make provision for supporting municipalities in the event of an increase in expenditure caused by the coronavirus outbreak or if tax receipts suddenly diminish.

The new macroeconomic forecast of the Economics Department of the Ministry of Finance, which also takes into account the consequences of the coronavirus outbreak, will be published on 16 April 2020.*

Review of Treasury operations by the State Treasury, January to March 2020

On 4 February 2020, in its first issue of the year, the Republic of Finland raised EUR 3 billion with a new 16-year benchmark bond, maturing on 15 April 2036. The order book amounted to over EUR 21 billion, the largest ever for Finland. The issue attracted bids from more than 160 investors. The bond was priced at 11 basis points below the euro swap curve.

On 10 February 2020, the Republic of Finland conducted an auction of euro-denominated Treasury bills. The auction consisted of two maturity lines, raising a combined amount of EUR 1 470 million. The total amount of bids was EUR 1 865 million for the line maturing on 12 May 2020, and the accepted amount was EUR 995 million. The allocated yield rate was -0.565%. The bid amount for the line maturing on 12 August was EUR 745 million, and the accepted bid amount was EUR 475 million. The cut-off yield was -0.535%.

On 18 March 2020, Finland conducted a tap auction of the latest 5-year euro benchmark bond due 15 September 2024. The bid amount was EUR 1 050 million, and a total auctioned amount of EUR 715 million brought the outstanding amount of this bond to EUR 3 715 million.

Since 16 March, the tap window for T-bill issuance in both USD- and euro-denominated bills has been open to produce EUR 6.5 billion and USD 1.85 billion of issuance in maturities ranging from 3 months to 10 months.

Near-term outlook for the period of April to June 2020 and beyond

The government’s latest supplementary budget for 2020, dated 20 March, indicates a net borrowing requirement of EUR 3.3 billion which implies gross borrowing of EUR 24.3 billion.

However, as discussed above, the outbreak of the corona virus and the subsequent state of emergency have economic implications, the extent of which are still uncertain. To prepare for rising government expenditure the State Treasury is planning to increase short-term borrowing by raising the frequency of euro-denominated T-bill auctions from quarterly to monthly for the second quarter of 2020. This together with a more frequent or continuous issuance window for bills will result in short-term funding absorbing most of the increase in the funding requirement at this stage. There would be further clarity to the need, if any, to increase long-term issuance via bond auctions or syndications post Ministry of Finance economic forecast publication in April.

As in previous years, issues under the EMTN programme may complement the euro-denominated benchmark funding during the year market conditions permitting.

The next auction of euro-denominated Treasury bills will take place on 1 April 2020. The auction will be arranged in the Bloomberg Auction System and is open to the RFTB dealer group. Further information on Treasury bill auctions and a quarterly updated auction calendar will be published on https://www.treasuryfinland.fi/funding-instruments/auctions/#treasury-bill-auctions.

In addition to Treasury bill auctions, an issuance window is to remain open during the second quarter of the year. The timing of the Treasury bill issuance is subject to the liquidity position and refinancing needs of the central government. Treasury bills are issued in euros and US dollars with monthly or bi-monthly maturity dates.

The next Quarterly Review will be published on 30 June 2020.

Further information: Teppo Koivisto, Director of Finance, tel. +358 295 50 2550, or Anu Sammallahti, Deputy Director, tel. +358 295 50 2575, firstname.lastname(at)statetreasury.fi

* Press release of the Ministry of Finance 20 March 2020.

, Updated 31.3.2020 at 10:00