MNI INTERVIEW: Swedish Debt Office Sees Robust Primary Demand

Primary market demand has remained robust in the secondary Swedish sovereign bond even as liquidity has worsened in the secondary market during the Riksbank's quantitative easing programme, Anna Sjulander, Head of Debt Management at the Swedish National Debt Office, told MNI.

The central bank owns over half of some outstanding maturities and "with the low yield environment, with all the regulations and also the central bank's quantitative easing we have seen that the daily turnover is less than previous years," the Riksgalden's Sjulander said.

"Liquidity has worsened but the market is still functioning. Investors and market makers can do the transactions that they want to do, but maybe in different sizes and not at once," she added.

The Riksbank has extended its asset purchase programme to SEK500 billion from SEK300 billion and announced that it will take up to the end of June 2021 to complete. It has also diversified into other asset classes, included corporate and municipal bonds, rather than focussing its firepower on sovereign debt alone.

DOOR STILL OPEN FOR FOREIGN ISSUANCE

On Monday, the Riksgalden updated its forecasts to show a slower-than-expected decline in output, feeding through to stronger central government finances and reduced plans for borrowing, mainly in T-Bills, and the cancellation of planned foreign currency bonds.

Swedish government debt levels are low by international standards, with the Riksgalden projecting it to hold at around 40% of GDP, but Sjulander said the reduction in planned issuance should not add to liquidity concerns.

"We didn't change the issuance volume that much in the nominal government bonds. So, we don't feel that the situation will be worse," she said, adding that "at the auctions, the cover ratio has been very high. It's been four times over bid in bonds and T-bills. So the primary market is working very well."

The Riksgalden typically uses foreign currency bonds for central government funding only when it anticipates a speedy increase in the borrowing requirement, as it did at the time of its May forecast. Things have calmed down since, but it will continue to sell foreign currency bonds for on-lending to the Riksbank, ensuring it maintains its contacts and know-how in the market.

"This is a very important channel for us for both knowledge and also for the investor base and the cost of funding. This is a channel which we will always have open for business continuity reasons," Sjulander said.

While the ultra-low interest rate environment has incentivised other national debt offices to push further into the long-end of the curve, beyond 25 years, the Riksgalden is not following suit, although it will issue a 25-year bond in November.