Sweden's current politically unstable climate leading up to the election is contributing to increasing concerns over a shaky time ahead for bonds and a weakening of the Krona, says Eddie Dahlberg managing director of Volvo Pension Funds in Gothenburg.

With the election coming up and the question mark over the EMU, I expect a fairly volatile market and I think we will have a hard time trying to get interest rates down" he says.

Already at a high level, rates are showing "tendencies for an upward move", a situation which Dahlberg thinks will not improve as the election draws closer.

"Certain banks have not been able to reduce the short term interest rates, which the inflation situation would otherwise make room for" he explains. "When you look at the inflation rates, the consumer price index is almost zero."

He sees the US market as one of the key factors compounding the Swedish inflation situation even further.

Stocks will have a slightly easier run on the back of a "tremendous year" behind Sweden in the equities market, though Dahlberg is still cautious. "The start of this year has been extremely good, but it seems like it is going to be driven by the high liquidity, so I think we will not see such a good performance for the rest of the year."

However, there will be no dramatic drop, due to a good level of demand in the market and he expects it to continue to perform at the same levels seen so far this year, and even "perhaps gaining a few percentage points."

Volvo's Swedish pension fund is relatively new on the market, only really kicking into action in September last year, says Dahlberg. The fund currently has around SKr5bn($3.8bn) in assets under management, an in-crease of SKr0.7bn since the first transfer of funds into the scheme in July last year.

The Swedish government traditionally pays for the majority of the pension and the Volvo pension scheme amounts to about 10% of the employees total pension once they retire. "The amount you receive is decided by the salary you earn during your final years as an active em-ployee" Dahlberg explains.

The fund has 50% of its assets invested in equities with the rest currently in bonds and treasury bills. The scheme, which is only available to Swedish-based em-ployees, is gradually transferring more of its assets, those currently in treasury, into Swedish equities with only a small proportion invested in foreign stocks, although Vol-vo is intending to increase its foreign exposure.

Dahlberg is content with remaining in the equity market for the medium term. "We have a benchmark which we have set ourselves," he says, "and we feel there is a potential with staying in in-terest bearing instruments." Volvo is aiming to meet is benchmark by the middle of next year "at the latest", but are moving slowly to "see what happens in the market.""