CHAPTER 4

Strategy 2010

The central government's domestic borrowing requirement in 2010 is DKK 120.6 billion (EUR 16.2 billion). Excess funding by the central gov ernment in 2009 amounted to DKK 13.7 billion, entailing a domestic is suance require ment of DKK 106.9 billion in 2010. Buy-backs of domestic debt maturing after 2010 increase the domestic issuance requirement.

The issuance strategy for government bonds is to build up liquid series on the basis of a 40-20-40 percentage distribution on the 2-, 5- and 10-year maturity segments. In addition, the T-bill programme will be re-opened. Issuance of T-bills will cover around DKK 40 billion of the central government's domestic issuance requirement in 2010.

In view of the positive experience from the auctions in 2009, issuance of government bonds via regular auctions will continue, supplemented with tap sales.

The central government raises foreign debt in order to maintain an adequate foreign-exchange reserve. The strategy for 2010 is to issue a 5-year euro loan of EUR 1-2 billion.

Issuance Strategy In The Coming Years 4.1

The large government surpluses in the period 2005-08 meant that central-government issuance focused on the 10-year maturity segment, cf. Gov ern ment Debt Policy in the Light of Falling Debt¹.

In 2009, the borrowing requirement rose substantially, mainly on ac count of the financial crisis and the economic slowdown. Consequently, is suance in the 10-year segment was supplemented with issuance in the 2- and 5-year maturity segments, cf. Chapter 3.

As government budget deficits are expected in the coming years, it is ne cessary to build up liquid bond series in other maturity segments besides the 10-year segment. The strategy is to issue bonds in the 2-, 5- and 10-year segments on the basis of a 40-20-40 percentage distribution, cf. Chapter 11. The strategy for opening new bond series is:

• Opening of a 2-year on-the-run issue every year
• Opening of 5- and 10-year on-the-run issues every other year.

In addition, issuance of T-bills will be resumed in 2010.

Issuance Strategy in 2010 4.2

In 2010, the government budget is expected to show a deficit of 4.5 per cent of GDP, primarily reflecting lower tax revenues and higher ex pend iture for transfer payments as a result of the economic situation and the Spring Package 2.0 tax reform, which is underfinanced in 2010.

The central government's domestic borrowing requirement in 2010 is DKK 120.6 billion (EUR 16.2 billion), cf. Budget Outlook 3, December 2009. Excess funding by the central government in 2009 amounted to DKK 13.7 billion, entailing a domestic issuance requirement of DKK 106.9 billion in 2010, cf. Table 4.2.1. Buy-backs of domestic debt maturing after 2010 increases the domestic issuance requirement for government bonds.

Domestic borrowing
The strategy in 2010 is to issue liquid bonds in the 2-, 5- and 10-year segments on the basis of a 40-20-40 percentage distribution. In addition, a T-bill programme will be built up to cover around DKK 40 billion of the central government's domestic issuance requirement.

Issuance in the existing on-the-run issues will continue in the 1st half of 2010, cf. Table 4.2.2. In the 2nd half of the year, a new 5-year on-the-run issue will be opened, maturing in 2016 to fill a gap in the central government's redemption profile. The new 5-year series will be built up to a final outstanding volume of around DKK 40 billion over a 2-year period. In addition, a new 10-year on-the-run issue will be opened, maturing in 2020 or 2021. This series will be built up to a final outstanding volume of around DKK 80 billion over a 2-year period.

The outstanding volume in the 30-year bond, 4.5 per cent bullet loans 2039, can be built up to around DKK 90 billion. Issuance in the other bullet loans is also possible.

Auctions and tap sales
Experience from issuance via auctions in 2009 has been positive, cf. Chapter 6. In 2010, issuance of government bonds via regular auctions will continue, supplemented with tap sales. Auction dates for each month will be announced at the start of the month. The government bond(s) to be auctioned will be announced no later than three trading days prior to each auction. The auctions depend on stable market conditions.

Terms of borrowing for government bonds and T-bills can be viewed at www.governmentdebt.dk under Investor Relations.

Opening of a Treasury bill programme in 2010
The T-bill programme was phased out in the period 2005-08 to support the build-up of liquid 10-year government series at a time when the bor row ing requirement was low. In view of the considerable borrowing re quire ments anticipated for 2010 and the coming years, the T-bill pro gram me will be re-opened. T-bills contribute to widening the central govern ment's investor base and reduce the need to issue government bonds in 2010.

The T-bill programme will be opened at an auction on 25 February 2010 with 1 March as the value date. Subsequently, monthly auctions will be held. At the first auction, 6- and 9-month bills will be opened, to be fol lowed by new 9-month bills every three months. Primary dealer contracts for T-bills have been concluded with eight counterparties.

Foreign borrowing
The foreign debt is raised in order to maintain an adequate foreign-exchange reserve. The financial turmoil has highlighted the importance of being present in the foreign borrowing markets on a regular basis.

Government Debt Management resumed foreign borrowing at the end of 2008 after some years' absence. The absence from the international bor rowing markets entailed low familiarity with and awareness of Danish issues denominated in foreign currency. At the same time, a number of investors had to reopen lines to invest in Danish securities. It was also neces sary for Government Debt Management to re-establish broader contacts with investors and international banks.

To ensure access to foreign capital markets, the future strategy will be to issue an annual 5-year euro loan of EUR 1-2 billion. If the foreign bor rowing requirement is lower, currency swaps from foreign exchange to kroner may be concluded, cf. Box 4.1.

The central government's foreign redemptions total EUR 4.3 billion and EUR 5.6 billion in 2011 and 2012, respectively, cf. Chart 4.2.1. If necessary, the 5-year euro loan will be supplemented with further loans, e.g. by way of euro or dollar loans in the 3- and 5-year maturity segments.

the central government's foreign redemption profile	Chart 4.2.1
Note: Redemption profile at end-2009 excluding Commercial Paper and currency swaps related to re-lending to Danish Ship Finance.

The central government's foreign redemptions in 2010 amount to EUR 3.2 billion. The strategy in 2010 is to issue a 5-year euro loan at EUR 1-2 billion. The outstanding volume in the central government's Commercial Paper, CP, programmes is maintained in order to preserve liquidity in the programmes.

Buy-backs and switches
The central government can buy back domestic and foreign government securities in the market, but as a main rule not in the key on-the-run issues. In this context, it is assessed whether buy-back is advantageous on the basis of an overall evaluation of government debt policy. Buy-back may also take place with a view to ensuring a well-functioning market for government bonds.

Market participants have expressed a wish for regular buy-back auctions in government securities maturing within the year, which would allow investors to spread their reinvestments over the year. Furthermore, the market has shown an interest in regular opportunities to switch from old to new on-the-run issues. Consequently, the following will be held in 2010:

• Regular buy-back auctions in 4 per cent bullet loans 2010
• Switch auctions, mainly from 4 per cent bullet loans 2010 to 4 per cent bullet loans 2012.

Government Debt Management's issuance strategy for 2010 has been sum marised in Box 4.2.