Why do government debt managers often use interest-rate swaps?

Question

What will be an ideal response?

Answer 1

Government debt managers find that often times they can minimize borrowing costs by issuing longer term bonds. There is a strong market for these bonds. The problem, however, is that government revenues tend to rise during economic good times and fall during bad times. Short-term interest rates tend to follow the economy as well, rising during good times and falling during recessions. Government debt managers can often obtain both the benefits of offering long-term bonds and matching interest expenses with revenues by using interest-rate swaps.