Government finance statistics: financial derivatives – Products Eurostat News – Eurostat – European Commission

The general government financial accounts cover transactions in financial assets and liabilities as well as the stock of financial assets and liabilities. Governments can engage in contracts called financial derivatives (e.g. forward contracts, futures, currency and interest rate swaps, options) to mitigate certain financial risks. In general, financial derivatives are instruments where the price is determined by the value of another asset. For example, a government can hedge against the risk of rising interest rates that it needs to pay on its debt by signing an interest rate swap that exchanges a floating rate (received by the government) for a fixed rate (paid by the government). The value of such swap contracts can either be positive (be an asset) or negative (be a liability). In the second quarter of 2022, the net assets (stock of assets minus stock of liabilities) of financial derivatives held by governments in the euro area increased by around €23.0 billion from a liability position of €-44.2 billion at the end of the first quarter of 2022 to €-21.2 billion at the end of the second quarter of 2022. This is mainly the result of higher interest rates observed on the market, making the contracts that governments hold to insure against such increases more valuable.

This information comes from data on quarterly government finance published by Eurostat today. The article presents a handful of findings from the more detailed Statistics Explained article.

Timeline: Net assets in financial derivatives, euro area (€ billion; Q1 2008-Q2 2022)

Source dataset: gov_10q_ggfa 

The outstanding amount of financial derivatives can either change due to transactions (resulting from settlements) or other economic flows resulting in price changes (also known as holding gains or losses). As financial derivatives are traded on the financial markets, the value of these instruments changes constantly over time and can be very volatile. At the end of the second quarter of 2022, the value of the net assets held by governments in the euro area stood at €-21.2 billion, i.e. euro area governments, in aggregate, had a net liability in financial derivatives. 

For more information: 

Methodological notes: 

  • In the European System of Accounts (ESA 2010), most assets and liabilities are valued at market value. This means that the stock of financial assets and liabilities fluctuates due to transactions, but also due to “other flows”, notably revaluations (nominal holdings gains and losses). 

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