Sweden’s corporate bond market is immature, illiquid and dysfunctional, according to the country’s central bank.
The Riksbank recently commissioned asset manager BlackRock to write a report on the functioning of the market and the possible design of the bond-buying programme the central bank is conducting to counter the economic impact of coronavirus.
But the Riksbank told the Financial Times it could not publish the full version of the report, as that could undermine the scheme.
“The market is not mature and not functioning well,” said Heidi Elmer, head of the Riksbank’s market department, adding that it had “very scarce liquidity”.
Dozens of Swedish bond funds, most invested in high-yield debt, were suspended in March, when the early days of the Covid-19 crisis put global financial markets under severe stress.
At the same time as the market turmoil, the Riksbank announced plans to start buying non-financial companies’ debt for the first time. In May, it hired BlackRock, the world’s largest fund manager, to act as a consultant analysing the country’s corporate bond market.
But this week, in response to a freedom of information request from news agency Bloomberg, the Riksbank released only a heavily redacted version of BlackRock’s report, revealing almost no information about its content.
Ms Elmer said the small scale and illiquid nature of the market meant the Riksbank “cannot be as transparent as we try to be and like to be. It could counteract the purpose of the programme”.
The Riksbank is aiming to buy up to SKr10bn ($1.1bn) in investment-grade rated corporate debt by June next year, a small part of its overall SKr500bn quantitative easing programme. Lina Fransson, fixed-income strategist at bank SEB, estimated the market for investment-grade Swedish corporate debt at SKr320bn-SKr380bn and said the Riksbank’s purchases would not have “any significant market impact”.
Ms Elmer stressed the purpose of the Riksbank’s QE programme was “to keep interest rates at a low level”. She added: “The aim is not particularly pointed at increasing the functioning of the corporate bond market per se . . . We definitely see there is room for improvement. Various market participants need to contribute to that.”
The BlackRock report was “one source of input” into the design of the Riksbank’s programme and was “in no way conclusive”, with the central bank’s board taking the final decision about how to proceed, according to Ms Elmer.
The Riksbank began by purchasing SKr150m of corporate bonds in the first week of its programme in mid-September. Ms Fransson said she thought the Riksbank was floating “a test balloon” to be ready for worse market conditions. Ms Elmer herself said: “We would like to ensure we have a backstop if the markets deteriorate again so we would be prepared to act. We are ready and able to ramp up if needed.”
The main expert advising the parliamentary committee that oversees the Riksbank has called the corporate bond purchases unlawful, but Ms Elmer said: “Our lawyers are very content with this being in line with our current mandate.”