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Nordic bond markets

Nordic bonds led the world in performance last year, as investors applauded economic recovery and fiscal restraint. Although the upside now appears limited, they still provide a yield pick-up over German bonds. Norman Peagam reports.

A EUROMONEY SURVEY - MARCH 1996

Niche market offers select investment opportunities

After rapid growth in the past few years - driven mainly by budget deficit financing - prospects for foreign investors in the Nordic bond markets look increasingly dull. One of the biggest problems, despite growth, is size. For example, by 1994, the four markets (Denmark, Finland, Norway and Sweden) had publicly-issued bonds of around $550 billion; but government bonds only amounted to $17 billion in Norway, $20 billion in Finland, $77 billion in Sweden and $90 billion in Denmark, making a total of only around $200 billion. Moreover, the major local banks - which dominate these markets - have little interest in fostering their development because they make more money lending to clients than arranging bond issues for them. As a result, most Nordic bond markets remain small, insular and unsophisticated by international standards. For example, the Swedish Export Credit Corporation (SEK) recently launched a Skr1 billion ($146 million) 10-year domestic bond offering. SEK, half-owned by the Swedish government and half by local banks, is one of Sweden's top-quality credits and a frequent visitor to the Eurobond market. Nevertheless, its bonds were priced at a generous 17 basis points (bp) over the government benchmark and, as extra inducements, SEK provided spread and liquidity guarantees, promising to buy back the bonds from investors at any time at no more than 20bp over.

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