MNI INTERVIEW2: Riksbank Sales Boosting Liquidity - Debt Head
MNI (LONDON) - The Riksbank's brisk sales of bonds acquired under its quantitative easing programme have boosted liquidity but the effect on yields is difficult to calculate given the small size of a market exposed to much larger global flows, Klas Granlund, head of debt at the Swedish Debt Office, the Riksgalden, told MNI.
It is clear from analysis and market participants' feedback that "the increased free flow from them (the Riksbank) and also our increased issuance has improved market liquidity. We see that in different surveys and also in the Swedish FSA quantitative liquidity metric," Granlund said in an interview.
But the impact on prices and yields is harder to disentangle.
"A question that is really hard to answer ...(is) what persistent positive effect QE has had on yields, in particular in a local, small country like Sweden, where other factors abroad, for instance, where what the ECB and the Fed does, is perhaps more important than what the Riksbank does," Granlund said. (See MNI INTERVIEW: Riksbank QT Boosts Bond Market - Debt Head)
He minimised the importance of the Riksbank’s decision to retain SEK20 billion in bond holdings once it concludes its sales process, probably around the end of next year. The Riksbank has been in the leading pack among central banks in unwinding asset purchases, starting government bonds sales in April 2023 and then accelerating the pace to SEK6.5 billion per month.
"I don't think SEK20 billion will matter that much to the market. The residual, the other side of their balance sheet, will be how much liquidity there will be in the system and that is perhaps more important for the market," Granlund said.
The Riksbank will "want to have some kind of portfolio just to keep systems up and running and experience in place to perhaps intervene in the bond markets again," he added.
-BALANCED BUDGET RULE
Sweden’s fiscal target is set to be changed by lawmakers to a balanced budget from 2027, from the current target for a surplus of 0.33% of GDP. But the extra borrowing is not yet factored into fiscal arithmetic and may not prompt additional central government borrowing, as the target includes state pension funds and local authority borrowing as well, Granlund said.
"It depends how they all develop. There is a forecast from the National Institute of Economic Research that the central government, will be able to run a slight deficit over time, given that there will be a surplus in the pensions system. So it might mean that we will borrow a bit more in absolute terms," Granlund said.
Overall, Swedish debt levels looks set to remain exceptionally low by international standards.
There will be "an increased borrowing need in '25, '26 but it's important to note that the debt-to-GDP remains at 17 to 18 percent. ... [there] will be a bit more bonds out there, but in terms of debt-to-GDP it's still is a very, very low level compared to basically every other country there is, perhaps, except Denmark," Granlund said.