Transparency is key to liquidity in the corporate bond market – but limit it
Market-based funding through bonds can offer corporations great benefits – when the fit is right, and when common issues around liquidity and market transparency are faced with open eyes. At the Treasury 360° Nordic 2025 conference, Fredrik Bonthron, Chief Economist of the Swedish Securities Marketsd Association (SVPM) provided an explanatory overview of Sweden’s corporate bond market and its current status.
Bonthron’s presentation began with a graph based on numbers from Statistics Sweden. The country’s corporate bond market is currently seeing volumes more than 200 per cent of those seen in 2013. “Traditionally, Swedish corporates rely on bank funding or bank borrowing as their main source of funding. They still are, but the importance of corporate bonds or bond funding has increased,” he explains.
“Over the past 10 to 15 years, the growth in the bond market has been stronger than that for bank loans. Swedish corporates have been replacing some of their bank funding with bond funding.”
Not too much of a good thing
Liquidity tends to be better in the government and covered bond markets than in the corporate bond market. Bonthron cited several reasons for this, including the existence of market makers, repo facilities, and hedging opportunities in the first two markets. “I don’t think that we will see the same level of liquidity in the corporate bond market as we do in the covered and government bond markets, but there is potential for it to improve.”
Increased transparency will likely have a positive impact on liquidity. “It enhances the price discovery and evens out the playing field of the market,” Bonthron says. However, transparency is a double-edged sword. Too much of it “could harm the ability of potential market makers or banks stepping in when the market is stressed”.
Upcoming EU rules under the Markets in Financial Instruments Directive II (MiFID II) are looking to address the issue. Locally, the Swedish authorities have called for a corporate bond benchmark standard. “The logic being that if issuers limit their issuance to fewer bonds of larger sizes with more investors present, it could improve liquidity,” Bonthron says.
Tread lightly
In addition to that, the authorities are also pushing for improved transparency through self-regulation. Bonthron mentioned Föreningen för God Sed på Värdepappersmarknaden, a Swedish non-profit organisation that works to encourage self-regulation. Its recent proposal addresses information disclosure at issuance, comparability of bond terms, and equal treatment of bondholders.
Although these moves are likely to lead to improvements in the market, Bonthron recommends proceeding with caution. “The best is if market forces bring about or bring forward changes… You need to be careful because it could have a negative impact on the market.”
Speaker:
Fredrik Bonthron, Chief Economist, The Swedish Securities Markets Association (SVPM)
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