Opinion still divided on the functioning of the fixed-income market
News The Riksbank’s Financial markets survey indicates that opinion among market participants is still divided on how well the fixed-income market is working. The share of participants who consider that it is working well is slightly larger than the share who consider that it is working poorly. Inadequate liquidity is given as the most common cause of a poorly functioning fixed-income market. Half of participants consider that foreign exchange (FX) trading in Swedish krona (SEK) is working well. A disorderly UK withdrawal from the EU is seen as the greatest risk to the Swedish financial system.
Just over four out of ten market participants consider that the fixed-income market is working well or very well, while just under four out of ten think that it is working poorly or very poorly. Inadequate liquidity is given as a cause of the fixed-income market functioning poorly. Many participants consider that a less expansionary monetary policy in Sweden, especially by the Riksbank reducing its purchases and holdings of government bonds, can improve the functioning of the market over the coming six months. A less expansionary monetary policy is also considered to be of potential benefit to the market for FX trading in SEK. As in December 2018, half of participants feel that this market is functioning well.
UK withdrawal from the EU – the principal risk factor
The risk of a disorderly UK withdrawal from the EU is the foremost risk factor for the Swedish financial system in the period ahead, according to the market participants surveyed. Other risk factors mentioned include a financial crisis or recession, credit and liquidity risk, cyber risk, risks relating to the financial situation of one or more banks, money-laundering issues and increasing regulatory requirements.
Almost half of participants describe their risk-taking as low
Almost half of participants describe their risk-taking as low or very low while a third describe it as neutral. Only a few participants consider their risk-taking to be high or very high. A clear majority of the respondents consider they have reduced their risk-taking or say they have the same level of risks as before.
As from autumn 2018, the Riksbank sends out at regular intervals a questionnaire (the Financial markets survey) to participants active in the Swedish fixed-income and foreign exchange markets. The purpose of the survey is to gain an overall picture of participants’ views on the functioning of the Swedish financial markets, market activity and what risks they see in the Swedish financial system going forward. Compared with the earlier Risk Survey, the Financial markets survey is based on an updated questionnaire that covers functionality, market activity, risks, risk-taking and other overall questions with regard to both the fixed-income and foreign exchange market. This report presents the results of the survey responded to during the period 8–24 April 2019. The survey was sent out to 105 participants, both Swedish and non-Swedish, who are active in the Swedish fixed-income and foreign exchange market. The response rate was 66 per cent. The report is based solely on participants’ responses and is not an account of the Riksbank’s assessments.