The key indicator of the interest rate sensitivity of central government debt is average fixing. This indicator represents the average time (in years) after which the debt will be repriced. The shorter the period, the faster any changes in interest rates are reflected in the government’s debt expenditure.
The State Treasury manages the central government’s interest rate risk position primarily with interest rate swaps. At the end of 2023, the average fixing for central government debt was 4.44 years.
In Finland, the average fixing of debt is shorter than the average maturity, which is due to a policy choice of shortening the interest rate risk position with interest rate swaps. This choice arises from the typical term structure of interest rates. The interest rate curve, or yield curve, is generally upward sloping, i.e., short-term interest rates are lower than long-term interest rates. This leads to conclusion that a relatively short- interest rate strategy generates less interest expenditure than a longer one. On the other hand, a shorter interest rate risk position can produce greater variation in interest expenditure relative to a longer rate strategy.
The Debt Management Annual Review 2023, chapter nine, provides more on debt management in a world of higher interest rates.