1. The fundamentals — why this matters
Chapter 1 of 6 · 3 min
Government bonds are loans issued by the state, and they form the foundation of the bond market — their prices and yields price mortgages, municipal loans and the risk premium of the entire Swedish stock market.
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The yield curve shows interest rates across different maturities and is an important macro indicator.
A government bond is a debt instrument in which the state (in Sweden represented by the Swedish National Debt Office) borrows money from investors at a fixed interest rate for a specified maturity. The Debt Office issues bonds with maturities of 1, 2, 5, 7, 10 and 30 years via auctions every other week.
The total market volume in 2023 amounted to about 1 200 billion kronor, of which the Riksbank owned 350 billion from its QE program.
Bonds are priced as a percentage of nominal value, and the price moves inversely to the interest rate — when the interest rate rises, the price falls, and vice versa. This mechanics is central to understanding why the bond market reacts strongly to Riksbank decisions.
A Swedish 10-year bond with a 1 percent coupon falls about 8 percent in price if the interest rate rises to 2 percent.
The yield curve shows interest rates across different maturities and is an important macro indicator. Normally the curve slopes upward — longer maturities give higher interest rates as compensation for duration risk.
When the curve flattens or inverts, the market signals interest rate cut expectations and thereby recession risk.
Swedish government bonds trade on Nasdaq Stockholm with the Riksbank as the largest single owner via its QE program. The primary dealers (including Handelsbanken, SEB, Nordea and Swedbank) guarantee liquidity and participate in the auctions.
The market is thus deep and liquid, making Swedish government bonds one of Europe's most traded government bond markets.
For investors, the government bond interest rate is both the risk-free rate in DCF valuations and an indicator of the market's expectations about the Riksbank's future rate decisions. The difference between the 2-year and 10-year government rate (the slope of the curve) is one of the best leading indicators of the Swedish business cycle — an inverted curve has historically predicted recessions with a 12–18 month lead.