Swedish pension provider Skandia announced it has invested SEK500m (€44.7m) in a new government-agency bond – the first bond issue in the Nordic country to use a new transaction-based reference rate instead of the interbank rate the central bank wants to phase out.

The bond has been issued by Svensk Exportkredit, Sweden’s export credit agency, and is tied to the new reference rate SWESTR (Swedish krona Short Term Rate) – a transaction-based rate that the Riksbank, the Swedish central bank, calculates based on Swedish money market deals.

The bond has a two-year term and is the first SWESTR bond on the market, according to a statement from Skandia.

Lars-Göran Orrevall, head of asset management at Skandia, said: “As a long-term investor, we want to promote the development of SWESTR as we appreciate the transparency associated with the reference rate.”

SWESTR has recently been authorised in Sweden to be used in financial contracts, following testing since January 2021, according to the Riksbank.

The bank said it wants to see a transition to SWESTR from STIBOR, the Swedish interbank rate, to safeguard good confidence in Swedish reference rates although Stibor can still be used, for now.

The move towards SWESTR and away from interbank rates is part of an international development, with many factors having caused interbank markets to shrink over the past decade – including the manipulation of LIBOR (London Inter-Bank Offered Rate) and other IBORs discovered in 2012 which hit confidence in these reference rates based on the banks’ own estimates of their cost of borrowing rather than verified transactions.

Anna Finnskog, head of treasury at Svensk Exportkredit, said the state agency already had experience issuing bonds tied to transaction-based reference interest rates in other currencies.

“As we were one of the first to issue SOFR bonds, it was natural for us to participate and contribute to the same development also in the Swedish market, by issuing this first SWESTR bond,” she said.

“We also want to respond to investors’ wishes and needs when they arise,” said Finnskog.

SOFR is a reference rate established as an alternative to LIBOR, using actual costs of transactions in the overnight repo market, calculated by the New York Federal Reserve.

Danske Bank acted as adviser and arranger for the transaction, Skandia said.

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