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Sweden’s Credit Market Rebounds on Surging ESG Bond Volumes

Rafaela Lindeberg

(Bloomberg) -- Sweden’s once battered credit market is finding relief in an unexpected place.

As firms and governments try to recover, they’re selling more debt earmarked for ethical and social projects than ever before. That issuance has provided a lifeline to a market that suffered one of the worst crashes in its history just a few months ago.

Anna Reuterskiold, a green bond specialist on Nordea’s debt capital markets desk in Stockholm, says companies and government agencies have figured out that “you can get better terms if you issue green.” She says “there’s a wider investor base” when it comes to green bonds, which has made all the difference since the crisis.

“The issuers that we talk to say that green has remained an open line of communication to investors during this time of stress,” Reuterskiold said.

The Covid-19 pandemic is also driving high volumes of so-called social bonds in the Swedish market, especially from the supranational, sub-sovereign and agency sectors, according to Reuterskiold.

As an example, last week saw a unit of the World Bank Group sell 4.5 billion kronor ($478 million) worth of bonds to support member countries in their efforts to tackle the impact of Covid-19.

“Social bond issuance was $31.6 billion in the first five months of 2020 -- nearly double that in the whole of 2019. Some 54% of 2020 volume has been issued in response to the Covid-19 pandemic.”

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Just three months ago, corporate bond issuance in Sweden ground to a halt as credit spreads blew out to financial-crisis proportions and more than 30 fixed-income funds slammed shut to halt a client exodus.

But bankers have marveled at the pace of the rebound. Dan Margolin, a Nordea banker working on the same desk as Reuterskiold, says “it’s been enormously quick.” In a matter of weeks, “we’ve come back to nearly the same levels as pre-corona.”

A major driver has been a deluge of climate-friendly debt sales, with the Swedish market alone seeing “eight green corporate bonds in the last two weeks,” Margolin said.

Nor is the flurry of green supply confined to top-rated issuers such as Swedish Export Credit and Kommuninvest. Riskier, high-yield companies are getting in on the act, too.

Earlier this month, unrated Cibus Nordic Real Estate AB reopened Sweden’s junk bond market with a 600 million krona green bond that priced comfortably inside early marketing guidance. The green label on the Cibus deal definitely had a positive impact with green accounts coming in with orders, according to a banker who asked not to be identified.

In Norway, meanwhile, Grieg Seafood ASA sold green notes that were 10 basis points under the lower range of initial price talk.

“It’s great that we’re now opening up the Norwegian high-yield market as well,” said Margolin. “We’ve seen there is solid interest.”

(Adds details on social bonds, as well as comment on Cibus deal.)

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