Quarterly Review Q3/2020

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 Finnish economy will shrink significantly in 2020 as a result of the coronavirus (covid-19) pandemic and the restrictive measures taken to mitigate the spread of the virus in Finland and abroad. The economy is expected to return to growth in 2021 and 2022. Obviously, the forecasts include great uncertainties related to the pandemic and the sentiment among companies and consumers in Finland and globally.

According to Statistics Finland’s preliminary data, the volume of Finland’s gross domestic product fell in April to June by 4.5 per cent from the previous quarter. However, this was significantly below the eurozone equivalent. The restrictions on mobility and economic activities did not close down sectors of the economy or cut private demand to the extent feared earlier.

Contraction of the Finnish economy and the government measures to mitigate the impacts of the covid-19 pandemic will greatly weaken general and central government finances in 2020 and in 2021. The deficit in central government finances in 2020, including the six supplementary budgets, amounts to EUR 17.8 billion. The central government finances will show a substantial deficit also in 2021 as the government has announced that it remains committed to protecting people’s wellbeing and the ability of businesses to cope during the coronavirus crisis in Finland.

Finland’s relatively strong public finances and modern economy, among many other things, have traditionally been reflected in Finland’s high credit ratings. The central government of Finland has solicited credit ratings from three credit rating agencies: S&P Global Ratings, Moody’s Investors Service and Fitch Ratings. For long-term debt, they are AA+, Aa1 and AA+, respectively. All credit rating agencies have assigned a stable outlook on the rating. Next calendar dates for credit rating announcements and the latest reports of the rating agencies are published on the State Treasury’s central government debt management website on https://www.treasuryfinland.fi/government-borrowing/credit-ratings/.

Review of Treasury operations by the State Treasury, July to September 2020

On 26 August 2020, in its third euro benchmark issue of the year, the Republic of Finland raised EUR 3 000 million with a new 10-year benchmark bond, maturing on 15 September 2030. The issue attracted an order book of over EUR 27 000 million with orders from over 150 investors. The bond was priced at 6 basis points below the euro swap curve at a re-offer yield of -0.217%.

On 29 September 2020, Finland conducted a tap auction of the latest 15-year euro benchmark bond due 15 April 2036. The amount bid was EUR 1 630 million, and a total auctioned amount of EUR 1 000 million brought the outstanding amount of the bond to EUR 4 000 million. The bonds were allocated at a yield of -0.134%. There was no tapping of euro benchmark bonds in the private placement format during the quarter.

In the third quarter, the Republic of Finland conducted two auctions of euro-denominated Treasury bills. The auctions on 18 August and 8 September 2020 raised a total amount of EUR 2 986 million. The auctioned bills’ maturities ranged from 6 to 11 months and carried yields between -0.595% and -0.575%. Bid-to-cover ratios ranged from 2.0 to 2.2.

The tap window for T-bill issuance was not open in the third quarter.

Near-term outlook for the period of October to December 2020

The government’s latest supplementary budget for 2020, dated 24 September, indicates a net borrowing requirement of EUR 17.8 billion which implies gross borrowing of EUR 38.9 billion. At the end of the third quarter, approximately 95 per cent of foreseen long-term funding has been completed.

To complete the long-term funding requirement for the year, potentially one more tap auction of an existing euro benchmark bond line may take place in the last quarter of the year. The timing and size of the auction can be adjusted subject to the central government liquidity position and prevailing secondary market conditions of the Republic of Finland euro benchmark bonds. Details and further information of each auction is published one week prior to the auction date. Unless there is a significant increase in the funding requirement, further tapping of euro benchmark bonds in the private placement format is not foreseen.

The next auction of euro-denominated Treasury bills will take place on 13 October. 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 for bills is likely to open during the final 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 semi-monthly maturity dates.

The next Quarterly Review will be published on 21 December 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

, Updated 30.9.2020 at 10:00