Sweden is Safest as Crisis Upends Bond Market

Sweden is enjoying its lowest borrowing cost ever relative to Germany as investors reward the biggest Scandinavian economy for cutting its debt to less than half Europe’s average and enforcing discipline at its banks.

“Everybody is basically fleeing the euro area, not Europe,” said Georg Andersen, the managing director of the banking unit of Nykredit A/S in Copenhagen, Europe’s biggest issuer of mortgage-backed covered debt. “The Nordic area stands out as a safe haven.”

Almost two decades after resolving its last banking crisis, Sweden boasts the world’s best-performing bond market. The country, which opted to stay outside the euro, has paid down its debts and imposed stricter controls on its lenders. Sweden’s government made a profit on its 2008 financial rescue, will post a budget surplus this year and pays less than any other European Union member to borrow for 10 years.

Investors are willing to lend to Sweden for 10 and 30 years at interest rates lower than they charge Germany. Borrowing for a decade costs the largest Nordic economy about 40 basis points less, and it hasn’t paid more than the euro area’s biggest economy since September, echoing the discount it got from investors between June 2008 and March 2009.

Lowest Ever

Swedish government securities repayable in 10 years or more delivered a return of 28 percent this year, including reinvested interest and ignoring currency swings, the best of any sovereign debt markettracked by Bloomberg during the period. Swedish 10- year yields relative to similar-maturity German bunds touched the lowest ever on Nov. 25, as the Nordic country’s borrowing costs sank 64 basis points below bunds.

Swedish 10-year bonds yielded 44 basis points less than similar-maturity Germany bunds today, versus 40 basis points yesterday. Swedish 10-year yields slipped 3 basis points, sending the bond to its highest in four days.

Europe’s leaders have failed to solve the common currency’s turmoil 19 months after Greece became the first nation in the bloc to seek external aid to stay afloat. The debt-market hierarchy is shifting as even Germany displays symptoms of becoming ensnared in the turmoil and investors start to question the survival of the euro.

“People are allocating money away from all euro exposures,” said Andreas Halldahl, who oversees the equivalent of $18 billion as head of Swedish rates at Storebrand Kapitalforvaltning AS in Stockholm.

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