Handelsbanken bond chief says credit market doesn’t need more QE

Sweden’s central bank could scale down some of its bond purchases now that trading levels are tighter than they have ever been since the global financial crisis.

Photo: PR/Handelsbanken

That’s the view of a senior bond banker at Handelsbanken Capital Markets in Stockholm, and runs counter to expectations that Sweden's central bank, Riksbank, will boost a quantitative easing program at next week’s meeting.

The central bank "could start scaling down the purchases of covered bonds now," Anders Holmlund, deputy head of bond origination and syndication at Handelsbanken Capital Markets, said in interview. "They are still buying 5 billion kronor a week."

The central bank has so far bought about 184 billion kronor (USD 21.4 billion) of covered bonds as part of a 500 billion-kronor program to help ease the effects of Covid-19 on the funding markets.

But many market participants argue the purchases are having a destabilizing effect that distorts bond prices, especially in a credit market that Holmlund says has largely recovered. The central bank “could stop buying corporate bonds now and it wouldn’t change the market picture,” Holmlund said.

The banker dismisses claims by the central bank that the country’s credit market is dysfunctional and doesn’t expect the Riksbank to ramp up its pledge to buy up 10 billion kronor of corporate bonds on Nov. 26. "The Swedish krona market has been well functioning since April-May even as there has been volatility in spreads," Holmlund said. The bond banker also says investors "are still very interested in buying credit, and there’s a lot of cash."

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