Kommuninvest today publishes a new edition of the report ”Local Government Debt Management”. This report offers a picture of the structure and conditions of the funding of the total debt of the municipal sector. The new data refers to the first quarter (Q1) of 2021.
The report is based on Kommuninvest’s lending and the information that municipalities, municipal companies and regions have registered in the debt management tool KI Finans. Data for Q1 are built on information from 6 421 loans, certificates and bonds with a total value of SEK 501 billion as well as 1 737 derivatives linked to underlying loans totaling SEK 183 billion.
Regarding the total debt of the municipal sector, the average interest rate, including derivatives, decreased from the fourth quarter (Q4) 2020 to Q1 2021 by 4 basis points to 0.94 percent. This is the lowest level since the time series started in 2017. The average interest rate excluding derivatives, on the other hand, increased from 0.47 to 0.50 percent.
The average maturity of the total debt was 2.88 years at the end of Q1 2021. This was a decrease from Q4 2020, when it was 2.91 years. 25 percent of the loan portfolio matures within 12 months. The corresponding figure for Q4 was 24 percent.
The average period of fixed interest, including derivatives, for the total debt of the municipal sector amounted to 2.94 years at the end of Q1 2021. This was a reduction relative to Q4 2020, when it was 2.97 years. The use of derivatives extended the period from 1.66 to 2.94 years.
New transactions in Q1 2021
Regarding new transactions made in Q1, in terms of added loans and refinancing, the average interest rate, including derivatives, was 0.29 percent. This was an increase compared to the rate of 0.15 percent which was registered for Q4 2020.
The average maturity of the new transactions in Q1 was 2.52 years. The average period of fixed interest, including derivatives, was 2.68 years. The corresponding numbers for Q4 2020 were 2.89 and 1.93 years respectively.
– After having stayed low for a long time, market interest rates have risen at the start of 2021. This has had repercussions in the borrowing of the municipal sector. While the average interest rate of the total debt now stands at a record low, 0.94 percent, interest rates for new transactions have risen markedly. It is difficult to predict where market interest rates will go in the future. But it would be wise for municipalities and regions to be prepared for increased borrowing costs. This becomes particularly important as maturities and periods of fixed interest are relatively short. If interest rates continue to increase, this would quickly have an impact on the loan portfolio of the municipal sector, says Emelie Värja, Head of Research at Kommuninvest.
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