Prospect for 2008 New series of eleven-year

Prospect for 2008 – New series of eleven-year Treasury notes 1

Government Debt Management prospect – emphases in 2008 • • Planned Treasury note issuance of 47 b. kr. nominal value. • • Treasury bill issuance will be discontinued. New benchmark issue of 11 -year Treasury notes to be issued on February 21. Foreign borrowings maturing during the year will be paid up. 2 2

Declining borrowing need • Robust central Government finances – Budget surplus due to privatisation income and economic growth – 2005: 4. 5%; 2006: 5. 3%; 2007: 3. 7%; 2008: 1. 3% • This surplus can be traced primarily to the recent economic upswing, income from privatisation, and modest growth in government spending. • There is no borrowing need because the Government’s liquidity position is particularly strong, including around 97 b. kr. on deposit in the Central Bank. 3 3

Government debt – low by any standard • At the end of 2007, Government total debt totalled 302 b. kr. , or 23% of GDP. This is offset by on-lending and CB deposits, leaving a net debt to GDP of around 3%. • Foreign debt amounted to 154 b. kr. , or almost 51% of total debt. • The domestic Government debt has been concentrated into a few benchmarks. 4 4

The primary purpose of the new issuance is to promote an active secondary market and to strenghten price formation of the domestic fixed income market • Role of Government securities in domestic market – Price reference for other financial products – Long-term investment vehicle – Safe haven in times of financial instability 5 5

Description of the new Treasury note RIKB 19 0226 • • • Maturity February 26, 2019 Built up rapidly through several monthly auctions held in the first half of the year Amount for issue in 2008 totals 35 b. kr. The series is interest-bearing, with interest paid annually on February 26. The series will feature the same day-count convention and structure as other Treasury note issues. Amount for issue on February 21 ranges up to 10 b. kr. First auction will be held using Dutch auction method – Single-yield (price) auction, where the issuer gradually increases (lowers) the yield (price) until a responsive bid is met. Buyers can bid any yield (price) they want, and the Note is sold at a single yield (price) to all buyers whose bid yield (price) is at or lower (higher) than the auction-set yield (price). The auction-set yield will be the basis for the annual coupon of the series. Bids shall be expressed on a yield basis, with two decimal places. 6 6

Sovereign credit ratings Affirmed Foreign Currency Domestic Currency L/T S/T L/T Outlook S/T Moody’s February 2007 Aaa P-1 Stable Standard & Poor’s November A+ A-1 AA A-1+ Negative Fitch March 2007 A+ F 1 AA+ 2007 Stable 7 7

Domestic funding – plain and simple • The Central Bank auctions Treasury notes on a regular basis according to an auction calendar. • Seven local banks have been appointed as primary dealers and have exclusive access to the Treasury’s auctions. • At each auction, each primary dealer is obligated to submit bids for a minimum nominal value of 500 m. kr. • Auctions are held using the Bloomberg Auction System. • All notes are listed on the OMXI Securities Exchange and with the Iceland Securities Depository in dematerialised form. All trades are reported to OMXI in real time. • An FOP link with Clearstream is in place, with Dv. P solution gaining momentum. 8 8

The Central Bank offers securities lending facility for the seven primary dealers • In the process of acting as a market maker, a primary dealer may be left in a short position. • To facilitate market making, a primary dealer is entitled to borrow T -Notes temporarily in exchange for other securities that are held as collateral. • Each primary dealer is permitted to borrow T-Notes in each series for up to 5 b. kr. nominal value. • The commission for this service is 0. 20% a year plus a transaction fee. The maximum borrowing term permitted is 28 days. Contracts may then be rolled over. • Access to borrowing in this series begins February 27. 9 9

Transparency – sources of information • • • The gateways to information about the Icelandic fixed market are http: //www. bonds. is and http: //www. lanamal. is Bloomberg has information on Treasury Securities: Auctions, yields and bids. Government Debt Management, a department within the Central Bank, publishes monthly market information on auctions, issuance, yield curves, etc. For further information on auction terms, the description of the Treasury Notes RIKB 19 0226, and other matters, please contact one of the following authorized primary dealers: Glitnir, Icebank, Kaupthing Bank, Landsbanki Islands, MP Investment Bank, Saga Investment Bank, Straumur Investment Bank. 10 10