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RIKSBANK

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.

Published: 18 September 2008 13:49 CEST
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.”

ECONOMY

Riksbank deputy ‘open to reconsidering raising rates in April’

Martin Flodén, the deputy governor of Sweden's Riksbank, has questioned whether the central bank needs to bring in further rate rises in April, following bank runs on two niche banks in the US and a crisis of confidence at Credit Suisse.

Published: 16 March 2023 16:20 CET
Riksbank deputy 'open to reconsidering raising rates in April'

Uncertainty in the financial market following bank runs in the US and a crisis at Swiss bank Credit Suisse could have changed the playing field, he told TT in an interview. 

“It affects which level the key interest rates need to be in order to have a contractive effect,” he said, referring to the recent days of financial market turbulence. “We can’t just look at key interest rates by themselves. It’s the key interest rate in combination with all of these developments which determines how tight financial policy will be.”

He said it was not yet obvious what decision should be taken. 

“It’s clear that monetary policy needs to stay tight, but what level of interest is that? We need to assess all of the current developments there.” 

‘Could go in different directions’

In theory, there could be such a serious financial crisis, with such a severe effect on lending and banks’ financing costs, that the central bank would be forced to adopt supportive measures, even lowering the key rate.

Flodén doesn’t think Sweden is in that situation, although he thinks there’s a possibility it could happen.

“It’s not something I can see happening right now, at least, although this could go in different directions.” 

He added that he doesn’t see any reason for any “special concern”, toning down the risk that a crisis for two smaller niche banks in the US and at Credit Suisse could affect the Swedish financial system.

“Of course, it could lead to some stress, but there aren’t actually any particular signs in Sweden, which are worrying me,” he said. 

Flodén is one of six members of the Riksbank executive board, led by Riksbank chief Erik Thedéen, responsible for making a decision on whether interest rates will go up again at the end of April.

The Riksbank has indicated that a rate hike of between 0.25 and 0.5 percent from the current 3 percent rate could be necessary.

Flodén described the most recent inflation statistics for February, where inflation unexpectedly rose to 12 percent, as “not good at all”. So-called KPIF inflation, where the effect of mortgage rates is removed, rose from 9.3 percent to 8.7 percent in January. The Riksbank’s goal is 2 percent.

“It’s clear that inflation is still far too high and that monetary policy needs to be focussed on combatting inflation,” he said, adding that inflation statistics for March will be released before the central bank is due to make a decision on whether to raise rates or not in April.

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