Transcript: Interview with Icelandic Ministry of Finance Head of Funding and Debt Management Esther Finnbogadóttir

10 July 2025

By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 3 July 2025 with Esther Finnbogadóttir, head of funding and debt management of the Icelandic Ministry of Finance.

Q: What are the main consequences of the recent market turmoil, mainly due to trade tensions, for Icelandic debt?

A: In many ways Iceland is in a unique position. We were assigned a 10% tariff by the US, the lowest category. However, we have a trade deficit with the US. Only around 11% of our total goods export go to the US. For total exports that’s about 5-6%. So, the effects are really limited. We are not worried about our fish exports, for example. As happened before, when sanctions were put on Russia in 2014, we just found new markets for these goods. I don’t think we are concerned about the effects of tariffs in general. With respect to our debt, the impact is very insignificant. In fact, you could argue it has had a positive effect, given the Eurobond we issued in May. There was a lot of interest from investors. We had our best spreads in almost two decades.

Q: Has the current situation encouraged you to seek a change with respect to your share of international investors?

A: Maybe. We like diversification. All the foreign debt we issue is held by foreigners. In our last two deals, the one this year and the green bond issued last year, we saw a lot of new investors. We have achieved our goal in terms of investor diversification. In terms of domestic issuance, only around 10-12% of it is held by foreign investors. We have said before that we would like that number to be higher. But we got fairly positive feedback in the roadshow we did in the US, UK and Europe over the spring. I hope to see an improvement in this regard this year, and that’s also due to the current situation, where investors are looking for alternatives and new opportunities.

Q: The strategy that you released in December says that effective price formation will be ensured for the 2-, 5- and 10-year benchmark series each year. So how far are you into this objective in 2025 so far?

A: We are probably more or less in line with the strategy. We said we would issue ISK180 billion and we have done 64% of that so far. It is well diversified with a particular focus on these points of the curve you mentioned. Our goal is to have an average maturity between five and seven years and we are somewhere around six now.

Q: Do you still need to tap any of these three points of the curve?

A: In our annual borrowing plan, we stated that we would issue three new series this year. One has already been done, and it is a nominal bond maturing in 2038. Then we have two index-linked series that we are going to issue and will mature in 2029 and 2044. We just published that we are going to have the first auction on the 2029 maturity tomorrow. We did not state anything about the 2044 maturity in this quarterly plan, published on 30th of June. So, you can read between the lines and understand that we will probably go ahead in Q4.

Q: Are you planning to issue a new benchmark bond anytime soon?

A: It depends on what “anytime soon” means to you. We issued this €750 million Eurobond with five-year maturity in May. We also issued a green bond last year, another €750 million benchmark. Three years had passed after the previous benchmark issuance, which seems too long. However, our general funding needs are quite limited. We usually use international capital markets to issue foreign currency-denominated bonds to fund the foreign reserves of the central bank. Of course, the sustainable bonds that we issued last year, the green and gender bonds are an exception because they are used to fund eligible expenditures. But we would like to be a regular issuer. I would say we would ideally return to the market every two years. But we haven’t yet defined what that regularity should be. Our strategy with respect to foreign issuance is more opportunistic.

Q: Are there any other parts of your strategy in which you are more opportunistic?

A: We have a very predictable and transparent strategy with regards to our domestic issuances. We use this market to fund government operations and release an issuance calendar at the end of each year. We also release quarterly issuance plans. Before the pandemic we used these to publicise specific amounts for particular series. Given the increase in funding needs after 2020, we sacrificed some of this predictability to have more flexibility. But this is going to be temporary, as we will definitely return to the predictability we delivered prior to the pandemic.

Q: In terms of foreign issuance, should we expect anything from the Icelandic DMO in the remainder of 2025?

A: It is highly unlikely that we'll come back to the market this year as we just delivered our last issuance in May. We also completed a buyback, so the net increase of our foreign reserves was €200 million.

Q: You issue in euros and in ISK. Should we expect Iceland to issue in any other currency apart from these two anytime soon?

A: We use the ISK to issue in the domestic market. Ever since 2014, we have been focusing on the euro market. When we re-established access to the international capital markets after the financial crisis, back in 2011, we issued in US dollars because the US market allowed for more flexibility. We delivered another USD issuance in 2012 and have been focusing on the euro market since. We wanted to stop being considered an Emerging Market issuer and be categorised in the core European sovereign space, so we did our first euro issuance in 2014 and have since focussed on this market.

Q: What would it take for you to return to the USD market?

A: We can issue in whatever currency. But we use our issuances to fund our foreign reserves. Proceeds from a Eurobond are invested in euros. The central bank has its own strategy with respect to what they invest in and what currencies they focus on. A lot of their reserves are in USD as well. However, that part is not funded by the Treasury. But it depends on the needs. If a USD issuance makes sense for us, we would definitely consider it. But the core market for Iceland is Europe. So, if nothing else happens that has a huge effect on that, we are more likely to focus on the euro.

Q: Last year Iceland became the first state to issue a gender bond via a private placement. Do you expect to do another one soon?

A: We saw this as a pilot. With this bond we led the example of something that should be considered with regards to sustainable finance by other sovereigns. I would say that it's more likely than not that we would consider another issuance of this kind in the future. The maturity was only three years, and we will allocate the proceeds from that bond until it matures. So, we might consider something after this.

Q: So, in about two years’ time. Right?

A: Yes. No decisions have been made, but the framework is there. We like to keep it updated, so we will definitely at least revisit the idea.

Q: What should we expect from you in terms of green bond issuance for the remainder of 2025 and upcoming years?

A: Most of what I said about the gender bond is valid for green bonds too. The proceeds from the green bond that we issued last year fund our expenditures in 2024, 2025 and 2026. So, despite it being a 10-year bond, we are only focusing on the green expenditures in these three years. Once 2026 is over, we might consider new issuance as we have a lot of expenditures and investments on the green side. That's for sure.

Q: So, you will keep issuing green bonds after 2026.

A: It would be ideal for us to at least have another point in the curve after this allocation period is over. As from 2027, we could be considering another issuance, but no decisions have been made in that regard.

Q: Are you planning any other innovative issuances soon?

A: I can't really say, but we have a comprehensive sustainable financing framework that gives us many possibilities, such as issuing a blue or other kind of labelled bonds.

Q: Did the recent volcanic eruptions in the country have any significant on the economy or your debt issuances?

A: There was no major or significant economic impact. The volcano affected one town with a population of 3,500 people, less than 1% of the total population. The town had to be totally evacuated, so we saw some temporary effects on the domestic housing market, because these people needed a new home. The Treasury was impacted to some extent because various support measures were taken, like rental supports, and also because it had to establish a SPV to buy all the residential houses in the town. Despite the structures being intact, the town was uninhabitable due to cracks on the ground. So, there was some impact on our debt issuance because we had to increase our issuance volume by ISK30 billion to ISK150 billion at mid-year 2024.