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Riksbank: The functioning of the fixed-income market has deteriorated due to the coronavirus pandemic

The functioning of the Swedish fixed-income market is considered to have deteriorated, compared with last autumn, due to the coronavirus pandemic. This is revealed by the Riksbank’s Financial markets survey, which was carried out in April and May. The consequences of the coronavirus pandemic are seen as the largest risk factor facing the Swedish financial system.

The consequences of the coronavirus pandemic, in the form of a global recession, high volatility on the fixed-income and foreign exchange markets and the risk that participants will be driven out or disappear from the financial markets are seen by the participants as the main risks to the Swedish financial system. Just over half of participants say that they have reduced their risk-taking over the last six months due to increased uncertainty and poorer liquidity on financial markets.

Twice as many participants consider that the fixed-income market is generally functioning poorly or very poorly than consider that the market is functioning well. A majority of those considering that the fixed-income market is functioning poorly mention that liquidity is poor. The participants consider that market liquidity has deteriorated for covered bonds, covered bonds and commercial paper, above all. Many participants consider that the effects of the coronavirus pandemic may affect the functioning of the fixed-income markets in the period ahead. The foreign exchange market for SEK is considered to have functioned better than the markets for other comparable currencies during the coronavirus crisis, even if fewer participants than last autumn consider that the market functions well.

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