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Swedish Bond Secrecy Is Needed to Protect Market, Riksbank Says

Swedish Bond Secrecy Is Needed to Protect Market, Riksbank Says

Sweden’s corporate debt market can’t handle the kind of transparency the Riksbank offers around the rest of its quantitative-easing program, according to Governor Stefan Ingves.

“We are absolutely in favor of” transparency, Ingves said in an interview in Stockholm on Tuesday. “But this is a market which is quite different from, let’s say, the government debt market. And that means that it takes a while to gradually increase transparency.”

Swedish Bond Secrecy Is Needed to Protect Market, Riksbank Says

The Riksbank has faced criticism from market participants after it kept secret an analysis of Sweden’s corporate bond market done by BlackRock’s advisory unit. Andreas Halldahl, head of Swedish rates at Storebrand Asset Management, said the decision left investors facing a “black box” with “highly unclear working methods and motives.” Sean George, chief investment officer at Strukturinvest, called the secrecy “regrettable.”

Swedish Bond Secrecy Is Needed to Protect Market, Riksbank Says

The concern among market participants is that Sweden’s corporate bonds can be difficult to accurately value, especially given a lack of public ratings and with bank trading desks retreating from active market making.

Knowing more about these dynamics might help investors navigate the hurdles they face, and lead to fewer disruptions. Dysfunction in the market came to a head in March, at the height of the Covid crisis, when 35 credit funds were forced to slam shut to halt an investor exodus.

George at Strukturinvest said the contents of the BlackRock report might have forced “a much needed self regulation in the systemically important Swedish credit market.”

But the market will have to wait.

“We are absolutely not against transparency,” Ingves said. “It’s just it will take a while to gradually increase transparency.” The report by BlackRock is for “internal consumption,” he said. “It’s up to us to decide what to do and not to do. And that [is what] we have done.”

The Riksbank started buying corporate bonds in the week of Sept. 14, as part of an expanded QE program that has proved controversial from the get-go.

The legal adviser to the parliamentary committee responsible for drafting a new Riksbank Act has suggested the corporate bond purchases might be unlawful. And investors have warned that such QE will distort bond prices in a market that’s already rebounded from the Covid crisis.

The Riksbank is targeting just 10 billion kronor ($1.1 billion) in corporate bond purchases, out of a total QE program of 500 billion kronor. In the first week of corporate QE, purchases reached 150 million kronor.

“We have clearly stated how we are going to do this step by step,” Ingves said. “And we will provide market participants with a little bit more information than we have done so far when it comes to buying short-term corporate debt, their certificates of deposits. And that process is set in motion and we will take it step by step.”

©2020 Bloomberg L.P.