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Skandia CIO slams central bank for distortions in Swedish bond market

One of Sweden’s biggest life insurers and pension managers has criticized the Riksbank’s record quantitative-easing program for upending price logic across the whole bond market.

Skandia’s Chief Investment Officer Lars-Goran Orrevall | Photo: PR / Skandia

“As the Riksbank is buying more covered bonds than the amounts being issued, that is causing a shortage” Skandia’s Chief Investment Officer Lars-Goran Orrevall said in an interview. “That’s why rates are going down this much.”

This year, Sweden’s central bank embarked on an unprecedented SEK 500bn (EUR 48.3bn) bond buying spree to support the economy through the coronavirus pandemic.

Nearly half that amount has been allocated to covered bonds. The bank has so far only bought about SEK 120bn (EUR 11.6bn) of mortgage debt for the covered bond program. But the effects are already creating “really strange” distortions in the market, according to Orrevall.

“We actually get a higher total return on that government bond than on an equivalent covered bond,” he said. “This situation shouldn’t be possible.”

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