Mortgage bonds

Issuers: The Swedish mortgage lending institutions – some of them are Stadshypotek AB, Swedbank Hypotek AB, Statensbostadsfinansierings AB (SBAB) and SEB AB - issue bonds on an ongoing basis to finance their lending operations.

Companies and local authority-financed intermediaries finance their own lending operations in the same way as the mortgage lending institutions. Examples of the larger ones are Svensk Exportkredit (SEK), Industrikredit AB and Kommuninvest I Sverige AB.

Type of debt instrument: Promissory note. Fixed interest rate bonds with half-yearly or annual interest payments.

Maturity: As a rule, over two years from issue date.

Denomination: Varies.

Issuance: The intermediary institutions sell their bonds through a fixed issue syndicate consisting of Swedish banks and securities institutions and, in some cases, through overseas banks. The issues are carried out on a continual basis when the mortgage lending institutions require funds to finance their lending operations. These are secured by first mortgage loans on properties owned by borrowers.

Secondary market: The liquidity of the mortgage bond market in Sweden is considered to be fairly high in the larger mortgage lending institutions' issues. The secondary market also includes a market where trading is conducted by telephone. The participants involved in this market - banks and securities institutions - are market-makers. Mortgage bonds can also be traded on the Retail Bond List, a list for electronic bond trading within OMX Nordic Exchange Stockholm.

Valuation: The pricing of the instruments is stated as a real annual interest rate. The buyer does not pay a nominal amount, but pays the market price plus any accrued interest since the last interest payment date. To calculate the price (P) of a mortgage bond with an annual interest payment, use the following equation:

P= settlement amount / dirty price (per 100 SEK nominally)

Y= yield to maturity (%)
k= number of remaining coupons
C= coupon (%)
N= nominal amount (100 SEK)
n= term to maturity in years (day count basis: 30E/360)

Delivery and settlement: The delivery and settlement date for mortgage bonds is three banking days following the transaction date. The interest payment is received on the interest payment date into the VPC (Swedish Central Securities Depository) account in which the bonds have been registered, or alternatively by presenting the coupons attached to the bond against payment at a bank.


Links to the Swedish mortgage lending institutions:

SBAB
SEB Bolån
Spintab
Stadshypotek
Nordbanken Hypotek


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