Sweden ran a much bigger than expected budget surplus in 2017, the Debt Office said on Tuesday, raising the prospect that its already meagre government bond issuance could be cut further. Falling issuance and a 300 billion crown ($36.45 billion) quantitative easing programme have increased concerns about liquidity in Sweden's bond markets.
And although the latest budget surplus could exacerbate this, the Debt Office's debt management head, Goran Robertsson, said it was too early to draw any conclusions. "It would not be good if we were forced to reduce borrowing further," he told Reuters. "But. I don't think that one should make too much of a drama about individual adjustments (to issuance)."
The government ran a 61.8 billion crown budget surplus in 2017, figures published on Tuesday showed, higher than the Debt Office's October forecast of 28.3 billion crowns. The positive surprise was due to higher tax income. The surplus was lower than the 85.3 billion recorded in 2016, but that figure was artificially high due to individuals and companies parking money in tax accounts which paid higher interest than banks.
Strong state finances have led the Debt Office to successively cut issuance of government bonds, linkers and treasury bills, with the latest reduction being announced in October. Increased capital requirements for banks and other regulatory factors have also reduced liquidity in bond markets.
"But clearly the biggest factor is that the Riksbank is sitting on almost 300 billion of our bonds," Robertsson said. The Debt Office has seen a surge in activity on the repo market as investors look to make up the shortfall in bonds since the Riksbank launched its quantitative easing programme in early 2015. "But the market is still functioning and I cannot see that investors have been frightened off buying our bonds," Robertsson said.
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