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This week international rating agency Fitch Ratings held a global portfolio rating committee related to an overhaul of the Agency’s sovereign methodology released on May 26th, 2016. The results of the committee were published today. As part of the methodology adjustment Fitch changed its approach to the assessment of the long-term local currency (LTLC) ratings, bringing these ratings in line with the long-term foreign currency (LTFC) ratings for most sovereigns globally. In addition, Fitch has assigned new issuer default ratings (IDR) for short-term local currency (STLC) obligations. As part of the criteria related ratings recalibration, Fitch has lowered Iceland’s LTLC rating in line with its LTFC rating of BBB+, which was affirmed by the Agency on July 15th with a stable outlook. The ratings for short-term obligations in both foreign and local currency have also been affirmed at F2 Iceland’s sovereign ratings continue to be supported by the country’s strong macroeconomic fundamentals, sustained improvements in fiscal and external indicators, and solid institutional base.
Corresponding changes will be made to the ratings of other sovereigns whose LTLC ratings were a notch above their LTFC ratings.
The Fitch press release (pdf)
The Consumer Price Index (CPI) based on prices in July 2016 is 434.9 points (May 1988=100), 0.32% lower than in June 2016. The CPI less housing cost is 396.0 points, 0.55% lower than in June.The CPI is 1.1% higher in July 2016 than in July 2015 while the CPI less housing cost has decreased 0.6% from one year ago.The CPI compiled in the middle of July 2016, 434.9 points, is applicable for indexation purposes in September 2016. The old credit terms index for September 2016 is 8,587 points.Read more
Fitch Ratings has affirmed Iceland’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB+’ and ‘A-’ respectively with Stable Outlooks. The issue ratings on Iceland’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BBB+’ and ‘A-’. The Country Ceiling has been affirmed at ‘BBB+’ and the Short-term foreign currency IDR and CP at ‘F2’.
Fitch Rating’s rating action commentary
International rating agency Standard & Poor’s has affirmed Iceland’s sovereign ratings at BBB+/A-2 with a stable outlook. Standard & Poor’s expects economic growth in Iceland to remain strong over the next few years, supported by the tourism sector and robust private consumption. The stable outlook balances the potential for a faster-than-anticipated improvement in the country’s fiscal and balance-of-payments profiles over the next two years against the remaining risks surrounding capital control liberalization and the prospect of the economy overheating.
Standard & Poor’s research update
As stated in paragraph 5 of Terms of Invitation to Tender for Treasury bonds, the Government Debt Management offered the equivalent of 10% of the nominal value sold in the auction 8 July, at the price of accepted bids. This time Primary Dealers did exercise their right to purchase 70,000,000 kr. nominal in RIKB 20 0205. Total outstanding nominal value of RIKB 20 0205 after the auction is now 51,726,000,000 kr. Settlement date is 13 July 2016.
On Wednesday, 13 July at 11:00 a.m. Government Debt Management will conduct an auction of Treasury bills RIKV 17 0116 which mature on 16 January 2017.Press release (pdf)Auction terms (pdf)
On Friday, 8 July at 11:00 am, Government Debt Management will conduct an auction of Treasury bonds.In this auction nominal bonds RIKB 20 0205 will be offered. The total amount of accepted bids will be announced after the auction.Press release (pdf)Auction terms (pdf)
Third quarter 2016
1 The sale price or market value refers to the clean price, net of accrued interest.
As stated in paragraph 5 of Terms of Invitation to Tender for Treasury bonds, the Government Debt Management offered the equivalent of 10% of the nominal value sold in the auction 24 June, at the price of accepted bids. This time Primary Dealers did not exercise their right to purchase in RIKB 17 0206. Total outstanding nominal value of RIKB 17 0206 after the auction is now 36,930,000,000 kr. Settlement date is 29 June 2016.
The Consumer Price Index (CPI) based on prices in June 2016 is 436.3 points (May 1988=100), 0.18% higher than in May 2016. The CPI less housing cost is 398.2 points, 0.10% higher than in May.The CPI is 1.6% higher in June 2016 than in June 2015 while the CPI less housing cost is unchanged from one year ago.The CPI compiled in the middle of June 2016, 436.3 points, is applicable for indexation purposes in August 2016. The old credit terms index for August 2016 is 8,615 points.Read more
Today the Republic of Iceland bought back its own debt in the nominal series RIKH 18 1009, in the nominal amount of 30 b.kr. at a price of 100.29. Total outstanding nominal amount of the issue following the buyback is 182.911.315.408. The buyback is part of the debt and liquidity management strategy for the Republic of Iceland.
On Friday, 24 June at 11:00 am, Government Debt Management will conduct an auction of Treasury bonds.In this auction nominal bonds RIKB 17 0206 will be offered. The total amount of accepted bids will be announced after the auction.PressRelease (pdf)AuctionTerms (pdf)
In connection with the foreign currency auction held by the Central Bank of Iceland on 16 June 2016, in accordance with the Terms of Auction for the purchase of Icelandic krónur by the Central Bank of Iceland in exchange for euros, and in accordance with the advertisement of 10 June 2016 concerning the purchase price for State-guaranteed securities in connection with the foreign currency auction, the Central Bank has decided to purchase the following Treasury bill and Treasury bond series and State-guaranteed bonds offered as financing for foreign currency purchases in the auction.
Republic of Iceland today completed repayment of bonds issued in 2011 maturing today. The outstanding balance on the bonds series totalled USD 503 million, or equivalent to around ISK 62 billion. Payment for the bonds came from the Treasury's foreign currency balance with the Central Bank of Iceland.
On Monday, 13 June at 11:00 a.m. Government Debt Management will conduct an auction of Treasury bills RIKV 16 1215 which mature on 15 December 2016.
Press release (pdf)Auction terms (pdf)
The Government Debt Management has decided to cancel the auction of Treasury bonds planned for 10 June 2016.
The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore remain 5.75%. The Committee has also decided to lower reserve requirements by 0.5 percentage points, in line with previous statements.
The upcoming auction is credit positive insofar as it gives investors whose money is currently trapped in offshore krónur an exit, if they so wish, and helps relieve some of the pressure that has built up on Icelandic domestic assets as a result of the capital controls, as reflected by a steep appreciation of the onshore exchange rate over the past two years. The timing is also prudent since the authorities waited to conduct the auction until they had sufficient foreign exchange reserves to both buy the trapped assets but still retain enough to fund the country’s potential external liquidity needs.Moody´s report(pdf)
The Consumer Price Index (CPI) based on prices in May 2016 is 435.5 points (May 1988=100), 0.42% higher than in April 2016. The CPI less housing cost is 397.8 points, 0.33% higher than in April.Cost of owner occupied housing (imputed rent) rose by 0.8% (effect on index 0.12%).The CPI is 1.7% higher in May 2016 than in May 2015 while the CPI less housing cost is 0.3% higher than one year ago.The CPI compiled in the middle of May 2016, 435.5 points, is applicable for indexation purposes in July 2016. The old credit terms index for July 2016 is 8,599 points.
Sale of bonds without state guarantee that Treasury has received in connection with the composition agreements of the failed banks’ estates, was held at Government Debt Management on Wednesday 25 May 2016. The following series were offered:
As stated in paragraph 5 of Terms of Invitation to Tender for Treasury bonds, the Government Debt Management offered the equivalent of 10% of the nominal value sold in the auction 20 May, at the price of accepted bids. This time Primary Dealers did exercise their right to purchase for 40,000,000 kr. in RIKB 20 0205. Total outstanding nominal value of RIKB 20 0205 after the auction is now 49,156,000,000 kr. Settlement date is 25 May 2016.
In connection with Parliamentary handling of the Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions which entered into force Yesterday, the Central Bank wishes to emphasise the following. The Bank is currently preparing a foreign currency auction for owners of offshore krónur, and the terms and conditions for the auction, as well as its date, will be publicised very soon. Those owners of offshore krónur that own Treasury securities and securities bearing a State guarantee will be able to deliver them to the Central Bank as payment for foreign currency in the auction without previously selling the securities in the market. The repurchase prices of the securities will be published during the prelude to the auction and will be determined in accordance with their market price.
* Annualized rates