Risk management | english.dsta.nl

The DSTA, in its role as debt manager, faces various risks, such as interest rate risk, credit risk, currency risk, concentration risk, settlement risk, and operational risk. This page describes how some of these risks are managed.

Interest rate risk

The DSTA’s general objective is to finance the national debt at the lowest possible cost and with an acceptable level of risk to the budget. The primary risk for the budget is interest rate risk, i.e., the risk that interest costs increase as a result of interest rate movements.

Budgetary risk is low when interest rates on loans are fixed for as long as possible. In this way, interest costs are as stable and predictable as possible. However, fixing interest rates for longer periods generally leads to higher costs. Therefore, a balance is sought between cost and risk. The method for managing this risk is laid down in an interest rate risk framework, which is periodically reviewed to accommodate changing circumstances.

The most recent evaluation of the interest rate risk framework was in 2025. The evaluation period (2020-2025) was eventful due to the COVID-19 pandemic and rising interest rates. Nevertheless, the DSTA was able to finance the national debt effectively and efficiently. The next periodic evaluation is scheduled for 2030. If necessary, the DSTA can adjust policy earlier based on interim internal evaluations.

From 2026 onwards, national debt will be managed according to the new debt financing policy framework. New issuances will contribute to the new objective of shortening the average maturity of the debt, swap, and cash portfolio towards a minimum of 7.5 years. The decision to shorten maturity is mainly driven by the increased term premium and higher absolute interest rate levels. This represents a slight, yet structural, change compared to previous interest rate risk frameworks, where maturity targets were gradually increased.

In the interest rate risk framework valid from 2008–2015, the cost-risk trade-off was considered optimal if interest was fixed for seven years. To achieve the desired risk profile, the DSTA used interest rate swaps.

In response to historically low interest rates, it was allowed from 2012 to deviate from what became known as the 7-year benchmark. This was done by no longer using interest rate swaps to shorten longer loans to 7-year loans, thereby gradually extending the average maturity of the portfolio relative to the 7-year benchmark. A detailed description of the 7-year benchmark and the permitted deviations can be found in chapter 4 of the Outlook 2012.

In the interest rate risk framework for 2016–2019, a revised assessment of costs and risks led to a target average maturity of the (debt and swaps) portfolio of 6.4 years. The reliance on interest rate swaps was reduced. The average maturity influences the interest rate risk over a longer period. To also manage short-term risk, an additional risk measure was introduced in the 2016–2019 framework: the one-year refixing amount. This is the portion of the debt (including swaps) for which the interest rate must be reset within 12 months. For 2016–2019, this amount was capped at 18% of the national debt. The 2016–2019 framework is described in chapter 4 of Outlook 2016.

In 2019, the Policy Framework for national debt financing, consisting of the financing policy and the interest rate risk framework, was evaluated in a policy review. The recommendations from this policy review led to a renewed interest rate risk framework. The new objective was to gradually extend the maturity towards 8 years within a range of 6 to 8 years. The reason for this extension was to lock in the then-negative interest rates for a longer period, and the relatively low term premium in historical perspective. The new policy framework applied to the period 2020–2025.

At the start of the new policy period, the COVID-19 pandemic broke out. To fund economic support measures, an additional recourse was made to the money market in 2020, which serves as a buffer.

After an internal evaluation, the target was raised in 2022 to at least 7.9 years by the end of 2022. This meant a faster maturity extension, prompted by a lower risk appetite due to an increased debt level and still-low term premiums.

During 2023 it became clear that the funding requirement was lower than expected at the beginning of the year. Part of the initial drop in funding needs was absorbed by the money market. With these adjustments, the average maturity and the interest rate risk amount remained well within the revised 2023 targets: a minimum average maturity of 7.9 years and an interest rate risk amount not exceeding 25% of the national debt. Overall, the average portfolio maturity was extended by 0.4 years compared to 2023. In 2024, after a second internal evaluation, the maturity target was raised to at least 8.0 years by the end of 2024.

	Original target 2020-2025	Updated target 2023-2025
Average maturity (year-end)	Extend towards 8 years within a range of 6-8 years	Extend to at least 8 years
One-year refixing amount (% of national debt)	Maximum 30%	Maximum 25%

Credit risk

Credit risk is the risk that a counterparty fails to meet its contractual obligations. The DSTA is exposed to credit risk when temporarily placing surplus funds with financial counterparties. To minimize this risk, strict requirements are set for the creditworthiness of these parties. Counterparties must meet minimum rating requirements. In addition, credit risk is limited by placing as little unsecured money as possible and not for long periods. This means that, preferably, secured deposits are used, with collateral posted at the DSTA. If the counterparty, for any reason, fails to meet its obligations, the DSTA can claim this collateral. The credit crisis led to a further tightening of credit risk policy. For most counterparties, it is now permitted to place unsecured money only for a maximum of one day. In addition, the DSTA deals with other sovereign debt management offices.

The DSTA is also exposed to credit risk in interest rate and currency swaps. To cover this credit risk, swaps may only be entered into that are centrally cleared or with Primary Dealers and Single Market Specialists who meet minimum rating requirements, provided an ISDA (International Swap & Derivatives Association) agreement including CSA (Credit Support Annex) has been signed with them. During the swap transaction, the counterparty posts collateral when the market value of the swap—monitored daily—is positive for the DSTA. The Dutch State itself does not post collateral to counterparties.

Concentration risk

When a lot of exposure is concentrated with one or a small number of counterparties, the financial impact of a counterparty failure is likely greater than when the risk is spread over many parties. At the DSTA, concentration risk is limited by setting credit limits. These limits determine how much and by which instruments may be placed with a counterparty (maximum exposure).

Currency risk

Besides issuances in euros, the DSTA also issues (to a limited extent) in foreign currencies. This occurs primarily in Commercial Paper (CP), which may be issued in US dollars, British pounds, Norwegian kroner, and Swiss francs.

All foreign currency issuances are converted to euros using an FX swap at the outset of the transaction, so that the financing costs are fixed in euros and the DSTA is protected from currency risk.

Interest rate risk

Interest rate risk framework 2008 – 2015

Interest rate risk framework 2016 – 2019

Interest rate risk framework 2020 – 2025

Credit risk

Concentration risk

Currency risk

Documents

2020-2025

2016-2019

2012-2015 and earlier