15 April 2011

Treasury to prepay foreign-denominated bonds

The Central Bank of Iceland, on behalf of the Treasury, is offering to purchase, at par, any or all of the foreign-denominated Treasury bonds maturing in 2011 and 2012. The two bond series in question were originally in the nominal amount of 1,250 million euros (204 b.kr.). The Central Bank has already purchased a significant share of these bonds in the market, but approximately 800 million euros (130 b.kr.) are still outstanding. The purchase is an element in the Treasury’s liquidity and debt management strategy and the Central Bank of Iceland’s reserve management strategy.

The Central Bank’s foreign exchange reserves totalled 767 b.kr. (4.7 billion euros) as of end-March 2011. The Central Bank and the Treasury are therefore in a strong position to repay foreign loans maturing in coming years, including the aforementioned bonds. The repurchase also provides an opportunity to improve returns on the foreign exchange reserves in the current low-interest rate environment. In view of recent announcements from credit rating agencies, the invitation enables holders of the bonds to sell them at par in an orderly manner if they so choose. In addition, the auction provides the Republic of Iceland with information on non-resident investors’ sentiment vis-à-vis Iceland in the current situation, which is characterised by a significantly improved economic situation, on the one hand, and uncertainty about Iceland’s sovereign credit rating following the rejection of the Icesave Act in the recent referendum, on the other.

The invitation stands until 5 May 2011, and the results will be announced publicly no later than on 6 May 2011.

Further information can be obtained from Már Guðmundsson, Governor of the Central Bank of Iceland, at tel: +354 569-9600.

No. 10/2011
15 April 2011