MNI INTERVIEW: Sweden Diversifying Investors, Larger Auctions

Sweden's average sovereign bond auction size will rise to SEK8 billion next year from 2025’s SEK6 billion, and the country's debt office is attempting to diversify its investor base as it seeks to accommodate increased issuance, Riksgalden Head of Debt Management Klas Granlund told MNI.

"We will, in our current plan, issue SEK216 billion in nominal government bonds, which is a primary source of funding in 2026, and that is up from SEK146 billion in the previous plan. So it's a rather large increase, and of course, that means you'll have to increase the auction size," Granlund said in an interview.

Demand for Swedish government bonds has remained strong ahead of increasing issuance in the coming years. "That's the impression we get when we meet international investors, that we are a very solid credit, despite us now increasing issuance, I think we stand on our own merits there,” he said.

"I think our bid-to-cover ratios generally are very solid compared to many other government issuers.”

INVESTOR BASE

A report published in July by Sweden’s financial regulator (FI) found that trading of SGBs is concentrated among a few large firms, making the market vulnerable to shocks. Granlund hopes increasing issuance and outreach to investors will help address this. (See MNI INTERVIEW: Swedish DMO Unfazed By Bond Market Volatlity)

"I think we've seen a narrowing of the investor base, along with the free float decreasing, but we're also seeing a turnaround now, with the free float increasing, and when we also start issuing more, we see an increase in international investors holding Swedish government bonds," he said.

The Riksgalden is considering "how we can reach out more to the community, working more proactively with investor relations, that is something that we are planning to do because we want to have as broad of an investor base as possible."

He added that hedge funds, which comprise a growing share of the global sovereign debt market, "could fill many different roles." 

"I think you must distinguish between different types of hedge funds. We meet with hedge funds regularly to talk about our market," he said.

MATURITY PROFILE

About 90% of nominal issuance in 2026 will have maturities between two- and 10-years. While Granlund said that primary dealers had raised the question of adding another maturity towards the long end of the curve, such as at 30 years, he did not "see any reasons currently for us to extend our curve, neither from a cost-benefit perspective nor from a risk perspective."

The rise in term premia was not considered "a reason to recommend the government change the average time to refixing," which is between 3.5 and six years, Granlund said. 

"We do not act opportunistically on the level of interest rates. We are simply too big."

FOREIGN CURRENCY

Sweden plans to issue one foreign-currency denominated bond a year, after issuing both U.S. dollar- and euro-denominated bonds in 2025.

"Both currencies have their pros: different investor bases, and also different relative pricing compared to where we can fund ourselves in SEK," Granlund said. The choice of currency "will be decided closer to the issuance."

LINKERS

The Riksgalden has sharply reduced its planned issuance of inflation-linked bonds, and Granlund noted that the lack of liquidity of the linkers had "been a constant complaint from investors." (See MNI INTERVIEW: Linkers Poor Value Funding - Swedish Debt Head)

Linkers comprised 24% of Sweden's debt stock last year, which was extremely high in comparison with its peers. "We didn't see it as a cost-effective funding channel, and it also actually increased the risk of the debt a bit," Granlund said. "So we recommended the government to move towards a notional target that will be achieved in 2029 through maturing index-linked bonds up till then." 

"Now it's gone one year, and it's absolutely too soon to revisit this topic."