MNI INTERVIEW: Sweden Could Diversify FX Borrowing

Liquidity has improved in Sweden's domestic sovereign debt market as Riksbank quantitative easing slows, the head of debt management at the Swedish National Debt Office told MNI, adding that the country will continue to borrow in foreign currency and could diversify beyond dollars and euros.

"For 2020 we increased issuance volumes due to the pandemic and the extra stimulus from the Ministry of Finance," the Riksgalden's Anna Sjulander said in an interview, noting that this was now outstripping central bank buying. "Despite the fact that the Riksbank is still buying Swedish nominal bonds, liquidity is getting better according to the market makers."

The debt office expects to sell SEK96 billion in nominal bonds alone this year, just below 2020's SEK100 billion, Sjulander said. This compares to central bank purchases of nominal krona, inflation-linked and green bonds which are set to amount to SEK12 billion until the end of June.

The Riksbank, whose QE programme has also bought T-bills as well as corporate and municipal bonds, owns about half of the stock of nominal government bonds and a fifth of inflation-linked securities. Swedish authorities have been working together to shore up liquidity, Sjulander said, noting that it was improving from a low base.

"We have a dialogue with the Ministry of Finance, the supervisory authority and the Riksbank within the Financial Stability Board. Liquidity and a well-functioning market for domestic nominal krona bonds is important for us and our target," she said.

FOREIGN CURRENCIES

Debt office plans published Wednesday also sketch in the equivalent of SEK17 billion of non-krona sovereign issuance in 2021 and 2022, maintaining a Swedish presence in international markets as the Riksbank's foreign currency borrowing programme draws to a close, as the central bank switches to self-funding reserves.

"The borrowing requirement this forecast is pretty much in line with the last one and there is no major change in the funding plan except a switch of some krona funding to foreign currency funding. This is done to maintain a presence in that market," Sjulander said.

The aim is to keep the name of "the Kingdom of Sweden among investors and market participants," she said, "We have government guidance that we should have all channels open, that we fund in Swedish krona and foreign currencies but also grow the investor base."

The initial approach is to have one benchmark issue a year in foreign currency but this could change, she said.

"We have historically been active mostly in dollars and in euros," Sjulander said, adding "We are able to be more flexible and opportunistic when we do funding for the state's own account."

Foreign investor demand for triple A rated Swedish debt will be robust, she said.

"When we issued the green bonds and the 25-year maturity and, of course, in foreign currency we have seen a large proportion of foreign investors."