Sweden’s Debt Office halts t-bill trading

The Swedish National Debt Office (Riksgälden) announced on Thursday it was putting a temporary hold on its market commitment in treasury bills.

Sweden's Debt Office halts t-bill trading

The Debt Office explained the move by saying it was planning to hold talks with primary dealers due to “uncertainty in the market”.

The agency’s market commitment in treasury bonds remains the same.

“This decision is analogous to a stop in trading on a stock exchange. We simply need more information about what’s happening in the market before we can honour our market leading repurchase agreements,” said the Debt Office’s Thomas Olofsson to the TT news agency.

“What’s been put on hold now for a few hours is the support we give to the market by lending out treasury bills. The lending we do is only overnight to the banks when they have a shortage of bills and it works as a support for the market.”

The stoppage in treasury bill trading means that one of the banks’ short-term financing options has disappeared in the middle of a growing financial crisis.

Part of the reason is the spike in demand for treasury bonds, which are seen as a safe investment during rocky periods in the financial markets.

“Demand is too large. It’s a panic and everyone wants to get in on the only safe thing they see on the market,” said an analyst who wished to remain anonymous to TT.

According to George Ulvelius, head of investments with the Legal, Financial and Administrative Services Agency (Kammarkollegiet), the situation in the market for treasury bills is the result of pressure from large banks rather than a blow to their financing sources.

“The banks decided this morning in unison to take away the ‘right side’ of their entries. They’ve stopped selling treasury bills. It’s not possible to buy bills from the banks any longer,” he said.

Ulvelius has never seen a similar move during his 24 years in the market.

“The banks probably want to send a message to [the Riksbank at] Brunkebergstorg so they see how serious it is and that the Riksbank supplies them with liquidity or lowers interest rates,” he said.

“I think the Riksbank will do something in the next few days since the market is so sluggish.”


Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”