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.
At the end of 2023, the average fixing for Finland’s central government debt was 4.44 years.
In Finland, the average fixing of debt has been shorter than the average maturity, which was due to a policy choice of shortening the interest rate risk position with interest rate swaps. This choice arose 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.
Until 2024, State Treasury managed the central government’s interest rate risk position with interest rate swaps. According to the updated strategy for central government debt management, set by the Ministry of Finance, the average fixing of the central government debt will be moderately lengthened. This will be achieved under the existing borrowing strategy by no longer entering into new interest rate swaps as of 1 March, 2024. You can find more information on the strategy update here.