Interest expenses for the municipal sector are approaching the peak

The quarterly report "Local Government Debt Management", which offers a picture of the structure and terms of the local government sector's total loan debt, has now been updated with new data for the second quarter of 2024.

The report is based on Kommuninvest's lending and transactions registered by municipalities and regions, as well as their companies, in the debt management tool KI Finans. The basis for the second quarter of 2024 consists of 8,977 loans, commercial paper and bonds with a total value of SEK 671 billion and 1,610 financial derivatives with underlying loan amounts of SEK 205 billion. Since mid-2023, market interest rates in Sweden have been trending downwards. However, the average interest rate on the local government sector's loan debt continues to increase, but the rate of increase is now marginal.

The average interest rate on new deals, including derivatives, decreased to 3.49 percent in the second quarter of the year, compared to 3.75 percent in the previous quarter. The average tied-up capital on new deals in the second quarter was 2.8 years, which is an increase from the first quarter, which was 2.47 years at the time. The average fixed interest rate, including derivatives, on new trades in the second quarter was 2.69 years.

Many municipalities, regions and municipal companies finance their investments with loans that have relatively short capital and interest tie-ups. Some municipal actors then use interest rate swaps to extend the interest rate fixation. As a result, the interest rate is tied up at the same level as the tied-up capital on the underlying financing. The average tied-up capital period decreased to 2.46 years, compared with 2.49 years in the previous quarter. From a longer time perspective, the average tied-up capital has increased, although the trend has been downward over the past two years. 29 percent of the loan stock matures within 12 months, which is an increase of 5 percentage points compared to the previous quarter.

– Many municipal borrowers have been hit hard by increased interest costs in 2023 and 2024. The fact that interest rates on the local government sector and new borrowing are now falling rapidly is therefore gratifying. Lower financing costs provide room for more investments in the future, says Mattias Bokenblom, Senior Analyst at Kommuninvest AB.

Link to the report: Local Government Debt Management Q2 2024

For further information:

Mattias Bokenblom, Senior Analyst, phone: +46-10-470 88 03, e-mail: mattias.bokenblom@kommuninvest.se

Victoria Preger, Chief Communication Officer, phone: +46 702 66 87 26, e-mail: victoria.preger@kommuninvest.se