Nordic Bonds – A well-developed market in a stable region

The Nordic bond market has decades of history with the first credit funds established in Norway in the 1980s. Over the years the market has grown and developed into a well-diversified and quite liquid market, total size estimated at around EUR 1500 bn.

Chart 1 below highlights the strong presence of covered bonds in the Nordics, making up a decent 50 % of the market. Especially in Denmark covered bonds have a long history of well-functioning markets but also in Sweden and Norway these markets are characterized by strong liquidity and well-developed infrastructure. Further, government bonds account for another 20 % of outstanding bonds in the Nordic region.

Source: Stamdata (underlying data), DNB Asset Management (further analysis)

Digging a bit deeper we estimate that the Nordic universe of corporate and financial bonds is around EUR 400 bn. This part of the market has been growing steadily over the last decade. In Sweden this has particularly been the case as the corporate bond market has grown from being rather small to becoming the largest domestic market in the region.

The main reason for the strong growth in all these markets stems from a change in how banks operate with regards to wholesale lending. As has been the case in most parts of the world, the aftermath of the financial crisis has led to higher capital requirements for the banks, as well as other regulatory measures. The result has been increased incentives for companies able to issue bonds in the financial markets to do so.