Nasdaq has decided to include Kommuninvest’s Swedish benchmark bonds in its broadest bond index, the OMRXALL. The decision was preceded by a consultation involving Sweden’s largest asset managers.
OMRXALL is one of the Swedish bond market’s most important benchmark indices, and is used for benchmarking a large proportion of assets under management in the Swedish bondmarket.
– Since the launch of our Swedish benchmark bond program in 2010, our strategy has been to establish municipal bonds as a natural and liquid part of the Swedish bond market, says Tomas Werngren, President and CEO of Kommuninvest. To be included in the broadest market index is a milestone and an important interim goal.
According to Christian Ragnartz, head of Kommuninvest’s debt management, the decision should have a positive effect on the demand for the company´s bonds. Additionally, there are a number of initiatives under way to further improve the liquidity. As examples he mentions an increased focus on the strategic funding markets and on benchmark issuance, but also increased transparency and better market coverage through potentially adding foreign market makers. The goal is to more clearly become a complement to Swedish government bonds.
– With the same rating (AAA) and regulatory treatment (level 1) as the Kingdom of Sweden, the liquidity premium is our main focus for the funding strategy. A decreased liquidity premium is crucial in order to add long term value for our members, he says.
With continued decreased borrowing requirement for the Swedish National Debt Office and an ongoing pricing correction in the housing market, which could potentially reduce covered bonds issuance from mortgage institutions, the prerequisites are also in place for increased demand for Kommuninvest bonds.
– Our target is for the entire Swedish benchmark curve to sustainably trade at similar levels to the sovereign that we see our peers in other countries trading to their respective sovereign. If we reach this objective, there is potential for a tightening of the spread between Kommuninvest and Swedish government bonds by as much as 20 to 30 basis points, he says.
Kommuninvest continues to grow as a consequence of increased market share and increased investments in welfare by municipalities, county councils and regions. Today Kommuninvest funds more than half of the municipal sector’s total debt of over SEK 600 billion. The Swedish benchmark programme has more than SEK 160 billion outstanding in eight bonds, maturing from 2018 to 2024.
There are currently five market makers in the programme: Danske Bank, Svenska Handelsbanken, Nordea, SEB and Swedbank. The index changes published by Nasdaq will take effect as of March 12, 2018. In addition to the broad OMRX All Index (OMRXALL), Kommuninvest’s bonds will also be included in the OMRX Bond All Index (OMRXBONDALL), the OMRX Bond All 1-3 y Index (OMRXBOND13), the OMRX Bond All 3-5 y Index (OMRXBOND35) and the OMRX Bond All 5 y Index (OMRXBOND5).
Kommuninvest is a municipal cooperation for efficient and sustainable financing of housing, infrastructure, schools, hospitals etc. Together, we get better loan terms than each one individually. Since its inception in 1986, the Kommuninvest collaboration has helped lower the local government sector’s borrowing costs by many billion kronor. Currently, 288 municipalities and county councils/regions are members of this voluntary cooperation, out of a total of 310 Swedish local governments. With total assets of around SEK 360 billion (USD ~41 billion), Kommuninvest is the largest lender to the local government sector and the sixth largest credit institution in Sweden. The head office is located in Örebro.