The corporate bond market

The corporate bond market allows for companies to finance existing and ongoing business as well as new projects and investments. In this way, the market fulfils an important function in enabling companies to conduct and develop their business. The corporate bond market also fulfils an important role for investors that wish to invest part of their savings in bonds.

The Swedish corporate bond market has grown significantly in size in recent years. Swedish companies are to an increasing extent choosing to finance their business by issuing securities rather than relying on bank loans only. Funding through the issuance of securities, i.e. capital market funding, has increased faster than bank loans for several years and now accounts for more than a third of companies’ overall funding. As a result, Swedish companies have some of the most diversified funding in Europe. The increased supply from companies has also been met by a strong demand from investors. New market players have emerged on both the supply and the demand side and a green segment, which is now one of the largest in the EU in relative terms, has emerged.

The supply side is no longer limited to large, global and well-known industrial companies; companies in many more sectors and of varying sizes are now represented among the issuers, with commercial real estate companies accounting for the majority of the issuance. New market players have also emerged on the demand side. The market was previously dominated by institutional investors, such as life insurance companies, that typically held the bonds until maturity. Today, however, investors that are active not only in the primary market but also in the secondary market, such as mutual funds, are much more common. This development places slightly different demands on the market and its functioning.

The functioning of trading in the corporate bond market is important

It is not uncommon for investors to want to sell parts of their corporate bond holdings either during the life of the bond, or as it approaches maturity. This can be done in the secondary market, where there are other investors willing to buy the corporate bonds. It is important that this trading is well-functioning, as it could otherwise impair the ability of companies issuing bonds on the primary market to finance their business and in order for investors to maintain a high level of confidence in the market and continue to make investments.

If trading in corporate bonds were to function poorly, making it permanently difficult for investors to resell their bond holdings if necessary, there is a risk that the willingness to invest in bonds would decrease. It could then become more difficult for companies to issue new bonds to refinance their operations. In the long run, a poorly functioning corporate bond market could also lead to problems with financial stability. The Swedish Securities Markets Association works in various ways to safeguard the functioning of the corporate bond market.

Transparency recommendation

In autumn 2020, the Association carried out work aimed at improving transparency in the Swedish corporate bond market. This work resulted in a transparency recommendation that became applicable on 1 July 2021.

The Association’s transparency recommendation and associated FAQ can be found here, under the heading Transparency on the bond market.

Harmonised bond terms and conditions

Since 2013, the Association has provided a template for terms and conditions for corporate bonds, that is commonly used on the Swedish market. The latest version of the template was published in 2022 and can be found here, under the heading Bond documents.

IBOR fallback terms and conditions

The Association provides templates for IBOR fallback clauses for bond terms and conditions. The term “fallback” here refers to a process of changing the the base rate, in the event of a permanent cessation of the base rate specified in the documentation for an outstanding bond loan. The need to regulate the process in the terms and conditions is driven by provisions in the Benchmark Regulation.

The Association’s templates for IBOR fallback terms and conditions can be found here, under the heading Bond documents.

Regulatory work and dialogue with authorities

The Association works actively to monitor and participate in the drafting of rules and regulations that affect the corporate bond market, such as measures within the framework of the Capital Markets Union (CMU), MiFID II/MiFIR, the Market Abuse Regulation and regulations regarding sustainability.

The Association maintains an active dialogue with authorities regarding various aspects of the functioning of the corporate bond market.

The Association’s work

The Swedish Securities Markets Association has for many years been involved in various issues relating to corporate bonds and the market in which they are traded. The work of the Association is carried out in different working groups, depending on the issues or topics discussed. General issues concerning the functioning and structure of the market are dealt with by Kreditobligationsgruppen. More specific issues, particularly of a legal nature such as bond documentation, prospectuses, market abuse related issues etc are dealt with in working groups focusing on those topics.