3.3.1 Objectives and strategies
Over a five-year period, borrowing in the retail market for Swedish kronor is to achieve the greatest possible cost saving in relation to the Debt Office´s alternative varieties of borrowing in the Swedish money and bond markets. This objective applies to total borrowing from the households as well as to each individual instrument.
3.3.2 Activities during 1999
The efforts to increase volumes in the Central Government Debt Savings Accounts continued during the year. During the spring the possibility to invest at a fixed interest rate with a maturity of one year was introduced. During November the existing options were
supplemented by a six-month investment at a fixed or a floating interest rate. Both of these options have attracted a number of new customers but the alternative still in most demand is the investment for two years with a fixed interest rate. All in all, the Annual Savings now include eleven savings options. So far, the Monthly Savings have not achieved the inflow that has been sought after. A minor increase can be seen but the level is still low. A positive aspect of the Monthly Savings is that many customers choose to transfer their funds to the Annual Savings when they have reached the minimum amount for investment in the latter.
The interest in Lottery Bonds continued to increase during the year. The number of customers increased and new categories of customers were added. One reason for the greater interest could be that Lottery Bonds have been subject to product development, as result of which the different issues have looked very different and included new features that have proved to be attractive to customers. The dealers have also showed greater interest and new dealers have been added. Sales directly by the Debt Office still stand at about 30 percent of total sales, which helps lower costs. A large part of the work in connection with the Debt Office´s own sales is handled by external suppliers which is a prerequisite for a cost effective business.
Direct sales of Inflation-linked Bonds by the Debt Office are modest in scope, but there is a certain demand and the activity continues since the cost incurred is small.
During the year, a lot of effort was put into increasing customer care. Procedures have been established determining how priorities are to be set and matters handled in an efficient manner so as to provide the best possible service to customers. In additon a market database system has been purchased permitting an active customer relation management (CRM). A certain amount of work remains, but once the system is in operation, new opportunities will arise, ultimately leading to increased customer satisfaction and larger volumes.
For technical reasons, a new subscription register had to be purchased during the year. A certain saving could be attained as it turned out that the market database system could handle subscriptions as well after some adjustment. As a result certain expenditures could be
recouped from the earlier supplier.
As investors in Central Government Debt Savings Accounts have individual maturity dates depending on the day the investment was made and on their choice of maturity, conversions take place daily.
In the area of communication with the market, the efforts to disseminate information about the National Debt Office as a safe, secure participant in the market for savings continued. Surveys show that the Debt Office enjoys a high degree of credibility and that more and more people know about the Debt Office and have confidence in its work. This is mirrored by the fact that the Debt Office is successful when sending out direct mail to existing customers and others. A customer magazine, Svenska Pengar (Swedish Money), has been published with one issue during the spring and one during the fall. An evaluation will be made to explore how important Svenska Pengar is to the customers.
The telephone has been and still is the dominant channel of distribution, in particular for the Central Government Debt Savings Accounts. During the year the internet has grown in importance, both in terms of communication with the customers and as a sales channel. The use of the internet is positive inasmuch as accessibility increases as does effectiveness but sometimes new tasks arise and have to be addressed. Efforts are being made to increase automatization so that the use of the internet by customers does not involve cumbersome manual processing at the Debt Office.
At the Debt Office, work has been done with the objective of widening the investor base and making it possible to offer all the instruments to smaller investors as well. The introduction is planned for the first half of 2000. The Debt Office has also had an outside expert make an analysis of the potential for such a project. The result shows that there is enough potential to
make it worthwhile and make it possible to meet the objectives set for the borrowing in the retail market. The Debt Office intends to establish itself as a safe, reliable participant in the market, offering the best opportunities among fixed income investments.
3.3.3 Results and achievement of the objectives
At the end of 1999, total borrowing from the households amounted to 64.1 billion kronor, equivalent to a decline by eight percent compared with December 31, 1998. A year earlier, the decline was 31 percent. Notwithstanding declining volumes, the share of borrowing from the households in total central government debt remains the same as at the end of the year before (4.7 percent). The reason is that the total debt has declined since the end of the previous year.
Figure 3.10 Domestic retail borrowing and its share of central government debt
0,0 20,0 40,0 60,0 80,0 100,0 120,0 140,0
1995-12-31 1996-12-31 1997-12-31 1998-12-31 1999-12-31
Volume, billion kronor
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
Retail Percentage of total debt
During the year, the Central Government Debt Savings Accounts registered a continued, slightly positive development. The net increase during the year amounted to just under 1.3 billion kronor, yielding a total volume of 6.47 billion kronor. A large part of the inflow came from conversions of maturing National Debt Accounts as well as maturing two-year Central Government Debt Savings Accounts, which had been opened in November 1997. Out of the maturing Central Government Debt Savings Accounts as much as 70 percent was reinvested, a figure that exceeds previous results of up to 40 percent.
Inflation-linked borrowing in the framework of Central Government Debt Saving Accounts increased during 1999 and amounts to 868 million kronor, equivalent to 13 percent of the total amount managed in Central Government Debt Savings Accounts. Borrowing by way of the Inflation-linked Bonds quoted on the SOX exchange amounts to almost 180 million kronor11.
11 This refers to theDebt Office´s own sales of Inflation-linked Bonds; statistics on sales to households by dealers can not be obtained.
Altogether, therefore, more than a billion kronor has been raised directly from the retail market by way of inflation-linked instruments.
National Debt Accounts, which have not been sold since November 1997, registered a decline of 2.5 billion kronor, yielding a remaining outstanding volume of 3.0 billion kronor.
In 1999, two lottery bond loans were issued. Altogether, these two loans raised 8.3 billion kronor, to be compared with 7.3 billion for loans issued in 1998. Despite the successful issue activity, the maturing of large amounts in 1999, amounting to 12.6 billion kronor, led to a decline in the outstanding stock by 4.3 billion kronor. By the end of 1999, the total volume of Lottery Bonds outstanding amounted to 54.4 billion kronor.
In order to calculate the share of the National Debt Office in the market for savings, it is first necessary to have a suitable definition of the market. In this context, savings forms related to shares must be disregarded but all fixed income savings – bank deposits, interest rate funds, private bonds – should be included. Using this definition, the total market for fixed income savings amounts to 674.2 billion kronor (third quarter 1999) and the share of the Debt Office in this market is 9.5 percent. At the turn of the year 1998/99, the market for fixed income savings amounted to 654.4 billion kronor and the share of the National Debt Office was10.6 percent. Thus, the market share has declined by 1.1 percentage point. However, this should be seen in in light of the fact that the market for private bonds decreased by almost 13 percent during the same period12.
Table 3.8 Expected savings from borrowing on the domestic retail market compared with borrowing of corresponding duration on the money and bond
market SEK million - (Earlier evaluation model)
Earlier evaluation model 1995/96 1997 1998 1999
National Savings Account (cf. short borrowing)
253 102 34
-Lottery Bonds (cf. zero coupon interest rate
structure) 126 245 186 212
National Debt Account (cf. zero coupon
interest rate structure) -11
-2 0
-National Debt Savings (cf. zero coupon
interest rate structure)1 - -20 -25 8,5
Total saving 368 325 195 221
1 Income distributed under duration over an average of 2 years. Income to be distributed is 35 million kronor
Table 3.8 shows the result of the borrowing from households and indicates a saving of 221 million kronor compared with the cost of borrowing in the money and bond markets. The main part of the result for the year can be attributed to lottery bonds. Retail borrowing met
12 Sources: Statistics Sweden, Financial Accounts – second quarter 1999; The Swedish Mutual Fund Association;
and The Swedish National Debt Office.
its objective of achieving cost savings in aggregate as well as with respect to individual instruments.
During the year, the Debt Office has introduced and further developed a new model of evaluation (see Table 3.9). The purpose was to arrive at a uniform and at the same time improved evaluation model. The estimate of the result for the Central Government Debt Savings Accounts for earlier years was made according to the new principle. Under the new method the result is calculated using the same model for all instruments. The change means that revenues and costs are matched along the duration of the loans. In addition, the earlier, mechanical distribution of certain joint costs has been reviewed and refined. The new model is in line with good accounting principles (for example the principle of matching).
The new evaluation model implies, as is evident from a comparison of Tables 3.8 and 3.9, a consistently lower result for the years 1995/96 - 1999. Consequently, the change will imply better results in coming years compared with the earlier model.
Table 3.9 Expected savings from borrowing on the domestic retail market compared with borrowing of corresponding duration on the money and bond market SEK million - New evaluation model
New evaluation model 1995/96 1997 1998 1999
National Savings Account (cf. short borrowing)
253 102 34
-Lottery Bonds (cf. zero coupon
interest rate structure)1 28 89 123 136
National Debt Account (cf. zero coupon
interest rate structure) -11 -2 0
-National debt Savings (cf. zero coupon
interest rate structure)2 - -20 -25 5
Total saving 270 169 132 141
1 Income and costs distributed under duration. To be distributed:
Costs: 341 million kronor Income: 1442 million kronor
2 Income distributed under duration over an average of 2 years. Income to be distributed is 35 miljoner kronor
According to the new evaluation model, the result for total retail borrowing amounted to a saving of 141 million kronor compared to the cost of borrowing on the money and bond markets.