A stable, well-functioning financial market for allA stable, well-functioning financial market for allFI Analysis 49: Increased concentration in trading on the Swedish bond markets
The turnover and the number of actors on the bond markets have decreased in recent years. Trading of government bonds has become more concentrated to a few large firms, which makes the market vulnerable to shocks. This is the conclusion of a new analysis by Finansinspektionen (FI).
FI has examined trading on the secondary market for Swedish nominal government bonds and covered bonds during the period 2018-2024. The government uses government bonds to borrow money for its operations, while banks use covered bonds to finance mortgages. The covered bonds are backed by collateral in the form of residential property.
"A key feature of a stable financial system is that the government bond and covered bond markets function as they should. A shock to these markets could spread to other parts of the financial system and by extension impact overall financial stability. FI therefore follows the developments on these markets very closely," says FI's Chief Economist Jon Thor Sturluson.
FI's analysis shows that the turnover and the number of actors on the bond markets have gradually decreased over the past few years. On the government bond markets, the market makers, in other words the financial firms that broker Swedish government securities, represent an increasing share of trading. The market has thus become more vulnerable to operating shocks that would render any of these firms unavailable for trading.
Continuously following the developments on these markets is an important part of FI's assignment to contribute to a stable financial system characterised by well-functioning markets.
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