MNI INTERVIEW: Swedish DMO Unfazed By Bond Market Volatlity

Swedish debt market liquidity has improved and recent market turbulence and curve steepening is not triggering any shift in issuance strategy, Klas Granlund, Head of Debt Management at Riksgalden, the Swedish Debt Management Office, told MNI.

There has been a gentle uptrend in foreign investment in Swedish debt and Granlund said it was a misunderstanding of how DMOs work to think recent market turbulence will derail issuance plans. 

"I see the financial press writes about it, and some analysts write about it - that the DMOs are considering changing their behaviour due to, perhaps, a failed or less successful auction. I don't think the DMOs actually work that way ... We have a more long-term focus where we try to issue cost efficiently over time," he said.

The Riksgalden has a maturity target, he noted, adding "we do not adjust it to sudden market moves."

With central government debt at just 19% of GDP,  Sweden’s bond market has struggled with liquidity in the recent past, not least during the period when the Riksbank was engaged in extensive asset purchases for quantitative easing.

"Liquidity in the government bond market in Sweden has improved over the past few years from a very low level where market participants thought it was really, really bad ... that has had to do with the increase in free flow, partially because we have increased our issuance, but also because the Riksbank has done QT," Granlund said. (See MNI INTERVIEW2: Riksbank Sales Boosting Liquidity - Debt Head)

Foreign investors hold about 28% of the debt, up from a low around 20% "So it's on an upward trend," he said, though he noted that there has been no demand surge in the wake of U.S. turbulence.

SYNDICATION AND BENCHMARKS

The Riksgalden chose to launch a 2037 bond via syndication rather than conventional auction.

"It's a quick way for us to reach critical mass ... we have used syndications historically when we introduce special bonds, like the green bond and the ultra-long fifty year. Now we use it as part of constructing the new benchmark bond. We will see how it goes. Perhaps it could be something we can consider in the future as well," Granlund said.

One possibility for the Riksgalden would be to sell new nominal bonds, such as the 15-, 20-, or 30-year maturities, on a more regular, rather than ad hoc, basis, but Granlund's focus was on swifter issuance. (See MNI INTERVIEW: Linkers Poor Value Funding - Swedish Debt Head)

"Previously, we have strived to have 18 months between our 10-year benchmark bonds on the curve, but now we decided to move to 12 month ...annual expiration maturities of the bonds. So that meant that we in 2026 saw the opportunity to actually introduce two new benchmarks, 10-year bonds, and the first one we decided to do by syndication," he said.

Granlund does not rule out issuing ultra-long bonds.

"If we see some kind of solid structural demand for longer, ultra-long bonds, then perhaps [we] will want to tap into that," he said, noting that they had done 25- and 30- year bonds in the past but would need to consider issues such as demand, long-term costs and portfolio composition.

FOREIGN CURRENCY ISSUANCE

Riksgalden’s new forecasts show budget deficits SEK82 billion larger than in the previous forecast for both 2025 and 2026, with an extra foreign-currency bond planned for this year as part of the boosted issuance.

"Currently, the pricing is not cheaper than issuing Swedish krona, but we decided still to do it anyway," in part to maintain name recognition and to help with liquidity management as they can replace shorter-term euro commercial paper with longer-term financing removing the rollover risk.

"The currency we're going to choose ... will be decided closer to issue, and it will depend on how we see the price in the market at that time," he said.

-DEMAND AND NET SUPPLY

The recent auction of a 10-year 2.50% bond only attracted a 1.82x bid-to-cover ratio but Granlund was sanguine.

"We're still averaging around a bid-to-cover of about three in Swedish nominal government bonds over the past year, which I think is very, very strong compared to many other countries," he said.

While projected budget deficits have risen, net debt supply overall will not increase, he added.

"The net supply to the market, if we include the Riksbank QT and our own issuance, it will actually be lower in 2025 and 2026 compared to 2024," he said.