Shortcomings in the corporate bond market need to be addressed
News, Riksbank studies The outbreak of the coronavirus pandemic brought to light structural shortcomings and vulnerabilities in the Swedish corporate bond market. These shortcomings risk strengthening negative developments in the event of financial turbulence. To improve the market, greater demands must be made of the players who are active in the corporate bond market in various ways.
Corporate bonds have emerged as an important form of funding for Swedish corporates over the past decade. When the coronavirus pandemic broke out, corporate bond markets around the world were very negatively impacted. The Swedish market was no exception. For a period of time, the market ceased to function completely. To keep down the general level of interest rates and contribute to a smooth supply of credit to Swedish corporates, the Riksbank introduced several powerful measures in spring 2020, which included the purchase of corporate bonds.
The corporate bond market has problems such as lack of transparency and insufficient liquidity. The shortcomings need to be remedied to increase resilience and ensure that the market functions well, as it is important for Swedish corporates’ funding.
The Riksbank's latest Financial Stability Reports have highlighted a number of proposals on how to improve the functioning of the Swedish corporate bond market. These concern making higher demands, on the one hand, of the corporates issuing bonds and the banks assisting in the issue process and in their role as intermediaries in the market, and, on the other hand, higher demands on the funds in their role as major investors in the market.
The Riksbank study "Towards a better functioning corporate bond market" gives a more detailed account of the proposals for measures presented in the Financial Stability Reports. The study also explains the background to the measures and why they can help to address some of the fundamental problems in the market.