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Sweden Warns That Government Debt Can Be Risky... Unless It's Swedish Government Debt

Tyler Durden's picture




 

On Wednesday, Sweden’s Riksbank will announce its decision on whether to cut the repo rate further into NIRP-dom and on whether to expand QE.

Who’s excited? 

Ok, so it may not sound as compelling as “US sails guided missile destroyer around man-made Chinese military outposts,” but tomorrow’s decision by Sweden’s central bank actually has serious implications for the global currency wars. 

As we explained on Monday (and on several prior occasions, here and here for instance) the Riksbank is in a tough spot. They’ve driven rates into negative territory and virtually exhausted the market’s capacity to absorb central bank purchases of government bonds and yet they’re still falling behind in the race to the bottom (i.e. incipient krona strength is still jeopardizing the inflation target).

An uber dovish Mario Draghi and the attendant threat of an ECB depo rate cut in December isn’t helping matters. 

And so, the Riksbank’s decision on Wednesday will be watched closely to see if Sweden will once again take a wait and see approach to the ECB or attempt to get out ahead by either cutting the repo rate or expanding the country’s already broken QE. 

This is well worn territory and we’re sure we’ll be revisiting it tomorrow, so we won’t delve further into it here other than to say that if the Riksbank does expand QE, they’d better revise the list of eligible paper lest the lack of market depth for government bonds should once again cause investors to reconsider the trade off between liquidity and the benefits of frontrunning central bank asset purchases on the way to sending yields in the wrong direction. 

So while we await Stefan Ingves’ decision, we thought it worthwhile to draw your attention to a particularly amusing contradiction in policy recommendations. Consider first this from Bloomberg

Sweden has told its banks to stop pretending all government bonds are safe.

 

With Greece on the verge of bankruptcy numerous times over the past five years, the cat’s out of the bag: it is possible to lose money on sovereign debt. That means banks should no longer be free to operate as though that weren’t the case, according to Sweden’s Financial Supervisory Authority.

 

Though European regulators have been trying to address this issue, Sweden didn’t want to wait for a region-wide decision before acting, Uldis Cerps, executive director of banking at the FSA in Stockholm, said in an interview.

 

It makes little sense that while “sovereign risk is being priced in markets on a daily basis,” banks “would be, by the regulatory framework, allowed not to take this into account in their capital planning,” he said.

 

Sweden has told its four biggest banks that they can’t adopt the standardized models, which would allow them to use risk weights as low as zero on sovereign debt. Instead, they must come up with internal ratings systems and assign realistic loss probabilities to the assets. The models also need to apply to municipal debt, Cerps said.

Got that? Sweden doesn’t think banks should stick to an across-the-board policy of assigning a zero risk weighting to the sovereign debt they hold on their books because as it turns out, governments can and do default. 

No argument there.

The punchline however, comes from Swedbank whose chief credit strategist notes that while banks shouldn’t always assign a 0% risk weighting to sovereign debt, when they do, they should make that debt Swedish. Again, via Bloomberg:

  • 0% Risk Weight Likely for Swedish Govt Debt Post-FSA Rule: Bank
  • Risk weight models for sovereign debt that Swedish FSA has required of biggest banks probably will give Swedish government bonds and rated municipal debt a 0% risk weight, Linus Thand, chief credit strategist at Swedbank, says in note.
  • Says all rated municipalities currently rated AAA or AA+ with a strong implicit government backing so that even if risk weighted higher than zero, “they are still considered Level 1 from an LCR perspective and we maintain that they are attractive in such a portfolio”

So, although Sweden admits that sovereign debt is in fact not risk-free, it's nonetheless likely to contend its own debt is without risk and not only that, the FSA will "probably" deem Swedish muni debt riskless too. 

That's extremely convenient for the Riksbank considering i) they're targeting SEK135 billion in government bond purchases, and ii) they've considered expanding the list of eligible assets to muni bonds.

In other words, Sweden thinks sovereign debt can be risky - only not Swedish sovereign debt - because that would be bad - especially if you're the Swedish central bank - and you're buying close to the top...

 

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Tue, 10/27/2015 - 15:29 | 6717894 HedgeAccordingly
HedgeAccordingly's picture

Maybe they will hijack Iceland again.. 

Sweden’s ‘Pirate Party’ Could Hijack Iceland
Tue, 10/27/2015 - 15:40 | 6717936 Four chan
Four chan's picture

sweden has no pride for its heritage and wants to self destruct under muslim and other low iq ruination like africa, rule one don't invest in someone or something that is actively engaging in its own destruction. this goes for every eu country and for house divided reasons the usa also.

Tue, 10/27/2015 - 15:41 | 6717948 silverer
silverer's picture

That way they can behead anybody that talks down their bonds.  Gets better every day, eh?

Tue, 10/27/2015 - 16:06 | 6718048 SheepRevolution
SheepRevolution's picture

For those interested, here's the chart for real estate index in Sweden:

 

http://www.scb.se/en_/Finding-statistics/Statistics-by-subject-area/Hous...

 

Trully unbelievable! All inflation in Sweden has gone into real estate. And the Riksbank doesn't even take it into account in CPI.

 

Also, the average price for the averaged size house in Sweden is now rougly 320.000 usd.

Tue, 10/27/2015 - 16:09 | 6718089 walküre
walküre's picture

Higher real estate prices are attractive to migrants and migrants attract higher real estate valuations even when every town is having ghettos!

 

Tue, 10/27/2015 - 16:17 | 6718128 SheepRevolution
SheepRevolution's picture

Believe it or not, but they massive wave of immigants coming in here in Sweden will cause real estate prices to go up even more. Swedes (the real ones..) are moving out from the cities to the sub-urb areas where migrants don't want to live. If you walk around in Gothenburg or Malmö, you will se more Arabs than Swedes. But when you get to those cities sub-urbs (the wealthier ones) that are about 10-20 miles away, than the picture is completely opposite. There you'll find almost only Swedes. And this pushes prices on houses up even more. Swedes are desperate to get out of the cities so their children can be raised in an arab-free environment, though nobody says it out loud here in Sweden.

Tue, 10/27/2015 - 16:21 | 6718157 Raymond_K._Hessel
Raymond_K._Hessel's picture

are the rape stories for real, or are they amped up by the 'islamophobes'?

Tue, 10/27/2015 - 16:22 | 6718166 SheepRevolution
SheepRevolution's picture

For the most part, they are real. Here's a good and recent video: https://www.youtube.com/watch?v=gnqG9XAoseU

Tue, 10/27/2015 - 17:37 | 6718504 Four chan
Four chan's picture
Sweden: Rape Capital of the West

http://www.gatestoneinstitute.org/5195/sweden-rape

Tue, 10/27/2015 - 19:42 | 6718957 BlussMann
BlussMann's picture

From what I read the Swedish Pigs and media are as bad as the British. They discourage arrest of the "vibrants" and perhaps even cover up rape offenses, as the British Pigs did in Rotherham. The Marxist press misleads the readers by referring to some stinking Moslem Arab rapist as a "Swedish man". The alpha males in Sweden, if there are any, need to get going to put a stop to these outgrages.

And isn't it the Swedish government that isattempting to arrest Assange for "rape"? Isn't that rich - please, Putin, put this mad Scandinavian dog down.

Tue, 10/27/2015 - 17:50 | 6718571 Hobbleknee
Hobbleknee's picture

But the new suburbs are planned communities with a mix of townhouses and apartments all mixed with side-by-side  with 5 million kronor houses, so there is no escape.

Tue, 10/27/2015 - 18:50 | 6718673 Griffin
Griffin's picture

There have almost no refugees come to Iceland yet, but we are expecting 50 Syrians in December. The people in the group that will be coming are being selected now and if everything goes as planned, most of those people will be going to Akureyri, a small town in the north east, some where around Christmas.

I think the idea is to get ca 100 more over the next 3 years. Maybe more if this works out well.

There are 839 Muslims in Iceland right now and they seem to blend quite well into our society with no major problems.

They have not built a proper Mosk yet, but the house they have for praying has a cage in it where women are allowed to pray.

That is rather odd to say the least, and disrespectful to women.

 

Tue, 10/27/2015 - 17:46 | 6718551 Hobbleknee
Hobbleknee's picture

The average mortgage term in Sweden is over 200 years.

Tue, 10/27/2015 - 16:43 | 6718250 Griffin
Griffin's picture

Actually, the Pirate party is by far the biggest political party in Iceland.

They have been that for quite some time now and according to the latest poll they get 34.2 percent.

http://www.mbl.is/frettir/innlent/2015/10/21/piratar_njota_enn_mest_fylgis/

Tue, 10/27/2015 - 15:31 | 6717898 JustObserving
JustObserving's picture

Talking of risky bonds:

Laurence Kotlikoff: U S Treasury Bonds One of the Riskiest Securities in the World, Financial System Will Collapse Just a Matter of When

http://investmentwatchblog.com/laurence-kotlikoff-u-s-treasury-bonds-one...

Tue, 10/27/2015 - 15:39 | 6717940 silverer
silverer's picture

You know, honestly, that makes sense.  Because of the sheer volume of them, you are screwed once the crowd heads for the door.

Tue, 10/27/2015 - 15:34 | 6717912 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Sounds like the US talking.

Tue, 10/27/2015 - 15:43 | 6717961 taopraxis
taopraxis's picture

The global sovereign debt market is a true mania, one led by the central banks themselves...frightening. There is nothing more dangerous than a "can't lose" investment.

Tue, 10/27/2015 - 15:46 | 6717968 Rainman
Rainman's picture

that's fukked up ... if you can't trust gubmint, who can you trust ? < heavy sarcasm >

Tue, 10/27/2015 - 16:19 | 6718149 RaceToTheBottom
RaceToTheBottom's picture

Don't they have "Mark to Fantasy" Accounting over there?

 

Tue, 10/27/2015 - 16:37 | 6718232 BlussMann
BlussMann's picture

Proud to be an "Islamophobe". Sweden is gone as a viable  1st world nation, may as well buy Ghana bonds.

Tue, 10/27/2015 - 18:03 | 6718625 CheapBastard
CheapBastard's picture

I thought those Islamers wanted Sweden's dental care. No?

 

http://1.bp.blogspot.com/-DRkkKH1p7nw/T9OXdFFOunI/AAAAAAAAD1Y/WXpPUZR0kw...

Tue, 10/27/2015 - 17:49 | 6718567 Ghordius
Ghordius's picture

One of the Old Tools Of The Kit, readapted and refined for Basle Accord accounting rules

It's less... crude then outright QE, and leaves a fig leaf of decency

Tue, 10/27/2015 - 18:52 | 6718782 Teh Finn
Teh Finn's picture

Sweden will be a -stan in 15 years or so.  Either fight back or get out, because Sweden is totally f'd.

Tue, 10/27/2015 - 18:56 | 6718796 Skip
Skip's picture

Unmentioned is the burden to Swedes of all the immigrants that it has taken in, and are still taking in. They are on welfare, and Swedish welfare is COSTLY. They are constantly having to build new housing for the crowd.

Sweden cannot remain prosperous and all that it has been as it morphs into a 3rd world demographic. Same with the US and Germany and England. Ireland is being told to welcome AFRICANS to help with the economy!!!!

I think immigration is a very important part of the puzzle of the insane economics practiced in the West.

Merkel: Gone Mad—Or Bribed? GOP Example Suggests The Latter
Merkel and Soros: Could it be....?
By Patrick Cleburne October 24, 2015

Ben Carson = Eric Cantor? Steak Dinners Again!
By Patrick Cleburne on October 23, 2015

White Anti-Racists Attacked by Minorities

A pro-migrant, open borders activist is reported to be “very sad” after being stabbed twice in the back by a gang of “Arabs” as he stood outside a pizzeria in Dresden, east Germany.

This isn’t the first case like this in what used to be the home of the European people. A far left woman was allegedly raped by migrants and was actually ordered to not report the case, lest the Narrative be compromised.

Anti-German Media Demands Germans Who Protest Islamic Takeover On Facebook Be Arrested

It’s not enough that German politicians are telling their constituents they need to be replaced by Muslims. Now, the ostensibly German media is actively encouraging the abolition of free speech and government action against people who disagree with them.

As you can tell from the tone of the coverage below, even reporters outside Germany are salivating over the possibility of criminalizing dissent.

Wed, 10/28/2015 - 03:24 | 6719886 Hobbleknee
Hobbleknee's picture

Not only are they on welfare, the government also pays people 50,000 SEK per month, per refugee, to host refugees.

Tue, 10/27/2015 - 22:13 | 6719442 Zelotai
Zelotai's picture

I am from Sweden, have studied National Economy, Statistics, Programming ... and spend hours and hours everyday reading about our insane migration policy.

One month ago our finance minister Magdalena Andersson presented the budget. It was a bizarre event.

She had her gráphs and talked about the strong economy, how strong the economy in the US was etc

She showed also how the budget deficit should decrease year after year and in three years be practically nothing.

That budget had numbers from the summer and everyone knows what has happened since then.

An even more insane migration policy has surfaced. While some countries restrict rules, enforce borders, and lower benefits to migrants the lunatics in our government with the help of the other traitors refuse to enforce border controls.

The Police said they had not enough resources to guard the borders so the politicians dropped that suggestion.

60 % of the swedes think that the immigration should decrease but only one party in the parliament want to do it, and they are not allowed entrance into the migration talks!

Some weeks after the presentation the government announces that they need another 37 billion for the rest of the year! Also note that the politicians have always talked about how much money we get extra by letting in people with no education. (The increase is about 15 000 sek per two children family, which is the same as 1800 dollars) The finance minister says we don´t need a new budget, we just borrow some more. Now the government is panicking and have sent mails to all departements telling them to find areas where they can save. One area swedish governments never save on, that is immigrants from dysfuctional countries that lies about everything. They even steal from the poorest in the world. About 10-15 billion they are going to steal from the foreign aid budget this year to pay for Iphone immigrants!!

There is a myth that journalists and politicians use that says. It takes seven years for an immigrant to get a job. That is not true, after 7 years between 40 and 50 % have a job.

Here is one leading journalist that lies three days ago.

http://www.aftonbladet.se/nyheter/kolumnister/lenamellin/article21636384.ab

"Sverige har varit för dåligt på att få ut nya svenskar på arbetsmarknaden. I genomsnitt tar det sju år vilket är absurt lång tid."

 

which means

 "Sweden has been too deficient in getting new immigrants into the labor market. On average, it takes seven years, which is an absurdly long time."

 

Our real estate market is insane. The area where I live, which is a rather calm, not the "hottest" place to live usually have 4-5 sales per year. This year so far we have had 0!

If anyone has any questions about the Kafka situation in Sweden. I will try to answer.

Wed, 10/28/2015 - 07:28 | 6720126 Ghostdog
Ghostdog's picture

Sweeeeeeee Done!

Do NOT follow this link or you will be banned from the site!