Foreign central banks pile into Swedish government bonds

Central banks acquired 49% of the latest sale of government debt issued by The Swedish National Debt Office.

The figure confirms the attraction of the country’s public finances, even as warnings increase about the state of the local economy.

The Office (Riksgälden) issued €1bn of two-year notes in a sale on Tuesday this week, which it said was the cheapest ever syndicated in the euro market.

“The deal was oversubscribed just over three times. The significant demand can be explained by a very strong interest for safe haven assets and the lack of alternatives with two years’ maturity,” the Office said.

Maria Norström, head of Funding, added: “The large appetite enabled us to tighten the price at execution and still achieve a broad investor base”

Other buyers included banks, corporates and fund managers, who acquired about 14% each. Pension and insurance companies accounted for the remainder.

Some 30% of the sale went to Nordic investors, meaning 70% went to Eastern Europe, Continental Europe, Asia and the Middle East.

The coupon on the bonds is just 0.875% per annum, and a yield of 0.927% per annum, according to figures published by the Office.

The spread against euro mid swaps was minus -55 basis points.

Poor economic outlook

The success of Riksgälden in selling government debt contrasts with the latest information from Sweden’s National Institute of Economic Research (Konjunkturinstitutet).

Its monthly Economic Tendency Survey published today suggests that business and consumer confidence again has fallen in the country.

The indexed Survey fell another three points in August, taking its fall to 12 points over the past three months.

“It is currently only a couple of tenths of a point above the average, indicating a considerable slowdown in growth in the Swedish economy,” KI stated.

“All sectors of the economy contributed to the decline in August. The confidence indicators for the manufacturing industry and the construction industry fell six points and four points respectively, while the indicators for the retail trade and the private service sector both declined five points.
The situation is strongest in the construction industry in which the indicator remains considerably above the average, while the situation is weakest in the retail trade. The indicators for the manufacturing industry and the private service sector are both close to the historic average.”

“The Consumer Confidence Indicator (CCI) fell nearly eight points in August. This decline is due to considerably weaker confidence in both the Swedish economy and personal finances.”

Of particular concern is the stagnation in industrial activity. The orderflow has almost stagnated KI said, while output and employment growth has fallen sharply.

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