Criticism of Riksbank Credit QE Grows With Concern Over Ratings

The Riksbank can now add another critique to a corporate bond purchase program that’s already been slated for its lack of ambition and poor timing.

On Sept. 14, the Swedish central bank will begin buying 10 billion kronor ($1.2 billion) of corporate bonds as part of a 500 billion kronor quantitative-easing push to protect Scandinavia’s biggest economy from the worst of the coronavirus pandemic.

But the technicalities around how those bonds will be purchased have drawn concern from credit analysts at Danske Bank in Stockholm.

The bank’s decision to purchase only bonds with investment-grade ratings from at least one of five rating firms, while excluding bonds with split high-grade/speculative-grade ratings, is “unfortunate,” according to Danske’s Louis Landeman.

“The development will incentivize rating shopping,” Landeman said, meaning companies could be tempted to only publish the highest rating awarded by the various rating firms. A rated borrower on the public debt markets will typically have two or even three ratings from the likes of Moody’s, Standard & Poor’s or Fitch.

“This could result in an overly positive bias with regards to the rating information that is publicly available to investors as negative views may never be published,” Landeman said.

The Riksbank’s first deputy governor Cecilia Skingsley told reporters on Thursday that she doesn’t share these fears, however.

“We count on the rating institutes to do their jobs with all the integrity they possess, and that company management teams are responsible enough not to shop for ratings,” she said.

©2020 Bloomberg L.P.

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