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2016-11-16

Sveriges Riksbank: Market participants consider that the Swedish financial markets are functioning slightly worse

In the autumn risk survey, half of the market participants responding
consider that the Swedish financial markets function slightly worse
now than they did six months ago. According to the respondents, the
deterioration is primarily due to perceived impairment in market
liquidity. The majority of respondents consider that the risks linked
to the low level of interest rates are significant due to factors
including a search for yield among investors. Household indebtedness
is also highlighted as a source of concern. The respondents explain
that if household indebtedness continues to rise at its present rate,
it may lead to problems when interest rates start to rise again.

The respondents consider that the financial markets are functioning
slightly worse due to a perceived decrease in market liquidity

Half of the market participants responding to the autumn risk survey
consider that the Swedish financial markets are functioning slightly
worse at present than they did six months ago. It is primarily
respondents active on the fixed-income market that take this view.
The respondents say that this deterioration is primarily due to a
perceived decrease in market liquidity. The most highlighted
explanation to the decrease in liquidity is that the market makers
have become less active and thereby less willing than before to act
as counterparts in buying and selling securities. According to the
respondents, this is one consequence of various financial regulations
that are considered to have made securities trading less profitable.
The Riksbank's purchases of government bonds are also brought up as a
contributory factor in the decrease in market liquidity for
government bonds.

Continued concern over risks linked to low interest rates and to
Swedish household indebtedness

Most of the respondents consider there are risks linked to the
globally low interest rates and the search for yield ensuing from
this. The respondents say that this leads to investors seeking
riskier investments and many participants say that this may lead to
the mispricing of risks. Household indebtedness is also highlighted
as a source of concern. The respondents say that the increased
indebtedness can be largely explained by the low interest rates and
think that if indebtedness continues to grow at the current pace it
could cause problems when interest rates begin to rise again.

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Since spring 2008, the Riksbank has carried out a survey of
participants in the Swedish fixed-income and foreign exchange markets
twice a year. The questions in the survey ask for the participants'
views on risk and also their opinions regarding the functioning of
the Swedish financial markets. The presented results are based on the
market participants' responses and do not necessarily reflect the
Riksbank's view of risks and functioning of the Swedish financial
system. The Riksbank's autumn 2016 risk survey was carried out in
October. The risk survey can be downloaded from the Riksbank's
website, www.riksbank.se.

Press office tel. 46 8 787 0200

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http://news.cision.com/sveriges-riksbank/r/market-participants-consider-...
http://mb.cision.com/Public/1460/2124142/af705c83713e63e4.pdf
http://mb.cision.com/Public/1460/2124142/838e4995b666e205.pdf

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