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Sweden’s Top Muni Bond Issuer Gives Go-Ahead for Riksbank Buys

Sweden’s Top Muni Bond Issuer Gives Go-Ahead for Riksbank Buys

(Bloomberg) -- Sweden’s biggest issuer of municipal bonds says it’s no longer concerned by the prospect of the country’s central bank buying its notes.

Kommuninvest I Sverige AB, which helps more than 95% of Sweden’s 290 municipalities borrow funds in the capital markets, has previously been critical of the possibility of the Riksbank extending its asset purchases beyond government bonds because of the likely market disruption.

But the company’s chief executive, Tomas Werngren, now believes that the municipal bond market has grown and matured enough to withstand “balanced” central bank intervention.

“I feel more calm today,” Werngren said in a phone interview. “The Riksbank knows what it’s doing and they have also accumulated a lot of experience from buying government bonds.”

The discussion about what tools the Riksbank can use to expand its balance sheet has intensified as central banks worldwide scramble to come up with responses to the continued spread of the novel coronavirus. The Swedish central bank, which raised its repo rate out of negative territory in December, has made clear it would rather rely on bond purchases than rate cuts if more stimulus is needed.

Market Constraints

The total amount of outstanding municipal bonds in Swedish kronor is currently more than $44 billion equivalent, according to the company’s own data. Within that tally Kommuninvest has more than $27 billion worth of Swedish krona bonds, the data show.

Werngren says it’s hard to estimate how much of that stock of bonds the Riksbank could buy without damaging the functioning of the market, but “if they were to buy massive amounts, I’d probably be critical.”

At the end of January, the central bank held 336 billion Swedish kronor of government bonds, which were purchased in its efforts to stimulate the Nordic region’s biggest economy. That represents about 45% of the market, and has sparked concerns around liquidity including trading volumes and price transparency.

“If the Riksbank acts in a balanced way, it wouldn’t be a big issue for the market as it is today, which it would have been on the previous occasion when this was discussed,” Werngren said.

Kommuninvest last warned the Riksbank to stay away from the market in 2016, saying it feared that any heavy-handed central-bank operations could disrupt the market and endanger liquidity.

Now the company’s position has shifted, particularly as increased demand for its bond could translate into “lower interest rates, and lower costs for public sector investments that are beneficial to society,” Werngren said.

“It’s hard to argue how that wouldn’t be a good thing,” he added.

To contact the reporter on this story: Niclas Rolander in Stockholm at nrolander@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Charles Daly

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