1. The fundamentals
Chapter 1 of 6 · 4 min
QE and QT are the central banks' balance sheet tools that complement the policy rate when the rate is already at zero — the effects are powerful and flow directly into property and growth stocks.
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The Riksbank expanded its balance sheet from 200 billion kronor in 2014 to 700 billion in 2020 via QE, corresponding to 14 percent of Swedish GDP.
Quantitative easing (QE) means that the central bank buys government bonds and other securities from banks and investors in order to expand the balance sheet and push down long-term interest rates. The tool was developed as a response to the zero-rate problem — when the policy rate is already zero, the central bank cannot cut it further, but it can still expand the money supply via asset purchases.
QE1 in the US in 2008 involved 1,25 trillion dollars in purchases of MBS and government bonds.
Quantitative tightening (QT) is the opposite — the central bank lets bonds run off without reinvesting, which shrinks the balance sheet and pushes up long-term interest rates. QT was started in the US in October 2017 under Janet Yellen and in Sweden in 2022 under Erik Thedéen.
The effect is the mirror image of QE: rates rise, real estate stocks fall and valuations are pushed down.
The Riksbank expanded its balance sheet from 200 billion kronor in 2014 to 700 billion in 2020 via QE, corresponding to 14 percent of Swedish GDP. This was the largest central bank intervention in modern Swedish history and created the conditions for the powerful property rally of 2015–2021 — and the painful fall of 2022.
The mechanism behind QE runs through two channels. First, the central bank's purchases drive bond prices up and push rates down — investors are forced to move into risky assets such as stocks and property.
Second, bank reserves increase, making it cheaper for banks to lend, which pushes down mortgage rates and corporate loan rates.
For Swedish investors, the link is clear. The Riksbank's QE of 2015–2019 pushed mortgage rates down from 3 to 1,5 percent, and Swedish real estate stocks (Castellum, Fabege, Hufvudstaden) rose 100–200 percent.
QT in 2022–2023 reversed this: mortgage rates rose to 5 percent and real estate stocks fell 60 percent. The effect was greatest on highly indebted companies like Heimdall and Corem.