The fixed income market

The money market is the part of the fixed income market where trading in interest-bearing instruments with a maturity of less than one year is conducted. Instruments with a longer maturity are traded on the bond market.

The fixed income markets are important for the real economy

The central government, municipalities, companies and banks can finance their existing and ongoing operations as well as new projects and investments through the fixed income markets. The central government and municipalities have to a high degree financed their operations through the bond market for a long time, but nowadays corporates are also increasingly financing their business through the bond market. Hence, the fixed income market fulfils an important role in enabling both public and private actors to conduct and develop their operations. The fixed income market also has an important function for investors that wish to invest part of their savings and liquidity in bonds and money market instruments.

The Swedish bond market is growing steadily. One of the reasons for the bond market’s growth is that companies outside the financial sector to an increasing extent choose to finance their business by issuing bonds. 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 financing in Europe.

It is now also possible to contribute to the climate transition through investments in green bonds. The proceeds of a green bond are earmarked to financing of various environmental projects. The first green bond was issued in 2007 and the market is growing rapidly.

The importance of a well-functioning fixed income market

It is not uncommon for investors to want to sell some of their 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 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.

The Association’s work

The Swedish Securities Markets Association has for many years been involved in various issues relating to fixed income instruments and the market in which they are traded. Within the framework of Penningmarknadsrådet, general issues related to the fixed income market and trading in bonds issued by the Swedish government, municipalities and covered bonds are discussed. Kreditobligationsgruppendeals with issues relating to trading in bonds issued by non-financial companies. The Association also has an XVA group where members of the Association discuss issues related to XVA. Other specific issues, particularly those of a legal nature such as bond documentation, prospectuses, market abuse related issues etc are dealt with in working groups focusing on those topics.