FAQ about extended purchases of securities
To mitigate the effects of the corona pandemic on the Swedish economy, the Riksbank intends to purchase securities in an amount of up to SEK 500 billion, up to 30 June 2021, in addition to the purchases planned prior to the pandemic. The purpose is to keep interest rates in general at a low level and contribute to an efficient supply of credit. Here we have collected frequently asked questions dealing with the Riksbank’s purchases of securities and replied to them.
Securities is a collective term for bonds, funds, equities and so on. The Riksbank's securities purchases include government bonds, mortgage bonds, corporate bonds and commercial paper as well as municipal bonds.
Why is the Riksbank purchasing securities to such a large extent?
We are doing this to keep the financial markets going. When the economy is turbulent, various types of assets lose value. If the Riksbank then purchases securities, for example government bonds, mortgage bonds and municipal bonds, demand increases for these securities. This leads to upward pressures on the price of the securities and to the return or yield on them thereby being pushed down. It could be said that the increase in demand means that the securities will not fall so much in price, which will reduce unease on the financial markets and increase stability in the system. At the same time, it will lead to lower interest rates.
When we purchase securities, for example bonds, these are converted into cash, which is to say liquidity in the form of “new” money on the banks’ accounts with the Riksbank. This therefore means that there will be a large surplus of money in the Swedish banking system. The banks can use this new money for transactions with each other, to lend to companies and households or to purchase other assets.
The Riksbank has decided to purchase different types of securities. What is the difference and what determines the type of security the Riksbank purchases?
Government, corporate, mortgage and municipal bonds all have different levels of risk. In well-managed countries, government securities have very low risk as the state can always, in principle, repay its debts by increasing taxes or reducing expenditure. Corporate and mortgage bonds, on the other hand, are riskier as the issuers can become insolvent more easily. This is why yields for these bonds are normally higher than they are for government bonds.
The type of security the Riksbank chooses to purchase depends on several factors. The Riksbank has already purchased a large share of all Swedish government bonds. Sweden’s national debt is also small in relation to GDP, compared with many other countries. This sets a limit for how many government bonds it is appropriate to purchase. Another important factor is demand for the various assets on the financial markets. For example, if demand for mortgage bonds decreases strongly, there may be reason to purchase these to support the mortgage market.
Why is the Riksbank now purchasing corporate and mortgage bonds when it has not done so previously?
The Riksbank has already purchased a large share of all Swedish government bonds. Sweden’s national debt is also small in relation to GDP, compared with other countries. This sets a limit for how many government bonds it is appropriate to purchase. Consequently, the Riksbank needs to purchase other assets too. By purchasing corporate bonds, we are improving credit supply to companies, and by purchasing mortgage bonds, we are also supporting the mortgage market. The purchases of municipal bonds help keep general interest rates down at a low level.
How many and which commercial papers and corporate bonds has the Riksbank purchased?
The Riksbank’s purchases of commercial paper are reported on the page Purchases of commercial paper on this website. This specifies the total volume of commercial paper that the Riksbank has purchased per week and in total over the course of the purchase programme. The Riksbank’s total holding of commercial paper is published every month.
The Riksbank’s purchases of corporate bonds are reported on the page Purchases of corporate bonds on this website. This specifies the total volume of corporate bonds that the Riksbank has purchased per week and in total over the course of the purchase programme. The Riksbank's total holdings of corporate bonds, as well as the allocation of the holdings among sectors and average remaining maturity, are published every quarter, starting from the start of 2021.
The Riksbank does not report information on the specific commercial papers or corporate bonds it has purchased. If the Riksbank were to publish such information, it could have effects counteracting the purpose of the purchases. For example, it would risk creating an imbalance between companies, which could damage the functioning of the market and thereby also the supply of credit to companies and the impact of monetary policy on the economy.