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Swedish Riksbank Purchases Aussie Bonds to Escape Low-Yields

Sweden’s central bank has added Australian bonds to its reserve pile to gain access to higher yields as it shuns securities from Switzerland and Japan where interest rates are hovering near zero.

After selling Spanish bonds and most of its Italian debt to shield itself from Europe’s fiscal crisis, Sweden’s central bank has made the adjustments it deems necessary to its 408 billion kronor ($62 billion) in reserves, Goeran Robertsson, deputy head of asset management at the bank, said yesterday in a phone interview from Stockholm.

Australia represents “good risk diversification” since the “economy looks a bit different than Europe and they also have relatively high interest rates,” he said. “Switzerland has had an extremely low interest rate for a very long time. For the same reason we don’t own any Japanese securities because there they have had a zero interest rate, so it has not been a good place to invest money.”

Sweden’s central bank has altered the risk profile of its record-high currency reserves, which have almost doubled since the outbreak of the global financial crisis five years ago. Following the collapse of Lehman Brothers Holdings Inc. in September 2008, Sweden’s central bank provided emergency liquidity to the nation’s lenders, peaking at $30 billion after international funding markets shut down.

Sweden’s appeal as a haven from Europe’s debt crisis has boosted the krona 8.9 percent over the past year, measured on a correlation-weighted basis, making it the best performer among 10 major currencies tracked by Bloomberg.

Boosting Reserves

The Riksbank sold the last 1.8 billion kronor ($275 million) of Spanish bonds last summer and has also cut almost its entire Italian bond holding. At the same time, it nearly doubled its Australian bond holding to 20.5 billion kronor, or 5.6 percent of the total currency reserve, as of the end of April, from 10.4 billion kronor at the end of 2012.

The bank in December boosted its currency reserves by 100 billion kronor for a second time since 2009 to backstop Sweden’s banking system. By the end of April, reserves had grown to 408 billion kronor, including 38.5 billion kronor of gold, from 217 billion kronor at the end of 2008.

“We saw a serious risk” in Europe, which made the bank start selling Spanish and Italian bonds in 2010, Robertsson said. “At the beginning, we bought mainly Germany but lately we have also added and bought more of Belgium and Austria.”

U.S. Bonds

The Riksbank has cut its Italian bonds to 1.7 percent of its euro area bonds from 18.7 percent at end of 2008, it said. In 2008, Spanish bonds accounted for 9.7 percent of the Riksbank’s euro-denominated assets. The Riksbank has this year raised its share of Belgian and Austrian bonds to 5 percent and 39 percent of euro assets, respectively. German bonds accounted for 66.4 percent of euro assets at the end of April -- up from 35.2 percent at the end of 2008.

The Riksbank had increased its U.S. bond holding to 52.8 percent of its foreign currency reserve at the end of April --up from about 30 percent of all assets at the end of 2008, it said yesterday. The share of euro nation bonds dropped to 35 percent from about 50 percent in the same period.

“That has to do with lessons from the financial crisis,” Robertsson said. “Swedish banks borrow a lot of dollars” and “when things get messy in Europe, U.S. investors return their money to the U.S. and there is then a dollar shortage in Europe.”

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