Major market unease in the wake of the coronavirus Anna Breman - PowerPoint PPT Presentation

Major market unease in the wake of the coronavirus Anna Breman Deputy Governor of the Riksbank Riksdag Committee on Finance 10 March 2020

Increased unease on financial markets 90 90 VIX index 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Implicit volatility S&P 500 Index Source: Bloomberg

Falling stock exchanges Index, 2016-01-02=100 Source: Macrobond

Increased demand for safe assets Per cent, 10-years government bond yields Sources: National central banks, US Treasury and the Riksbank

Swedish krona normally affected in uncertain times Sources: National sources and the Riksbank

Falling oil price USD per barrel Source: Bloomberg

Increased uncertainty hits companies with lower credit ratings High credit rating Lower credit rating Basis points Sources: Bloomberg and Barclays

The Riksbank’s toolbox is not exhausted Emergency • Loans to financial institutions to supply liquidity in a crisis liquidity assistance Policy rate • But the interest rate is close to its effective lower bound • Loans to companies via banks • Purchase government, municipal, housing and corporate Other measures bonds • Foreign exchange interventions • Forward guidance

Scope to broaden bond purchases 4000 4000 3500 3500 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 500 0 0 2013 2014 2015 2016 2017 2018 2019 Housing bonds Government bonds Corporate bonds Municipal bonds Outstanding volume of bonds issues in SEK billions Sources: SCB, Kommuninvest, Covered Bond Label and the Riksbank