Some 44% of Swedish investors have decreased their holdings of Swedish covered bonds in the last three months, according to an SEB survey published on Thursday, although more than half remain overweight the asset class.

The survey covers the largest investors in the Swedish fixed income market, according to SEB, taking in around 30 accounts.

Compared with 64% in a survey in June, 56% of the investors said they were overweight Swedish krona denominated covered bonds in the latest survey. The number of investors reporting underweight positions increased from 5% to 15%.

Charlotte Asgermyr, analyst at SEB, believes that the reduction in covered bond overweights has been primarily at the long end of the curve.

“What we have seen over the summer is that five year and longer have done worse,” she said. “After the summer we’ve had quite big issuance in the two to three year segment.”

SEB also asked investors how they believe Swedish krona denominated five year covered bonds will perform versus five year Swedish government bonds in the coming months. The majority of respondents (78%) expected no change to slightly tighter spreads.

Asgermyr said the increased uncertainty in the market had led to lower yields on government bonds.

“We see that Swedish government bonds trade at very low yield levels and the demand for Swedish government bonds is very large,” she said. “Also, when there is stress in the market investors tend to prioritise short end covered bonds over longer end, and that’s one big reason why we have seen the Swedish asset swap spread curve for covered bonds steepen as much as it has done over the past months.

“I think it’s mainly risk aversion and flight to quality that has driven the widening at the long end.”

Asgermyr said that Swedish krona denominated covered bonds have widened to 85bp-90bp over mid-Swedish krona swaps in the five year segment, which corresponds to levels of 45bp-50bp versus euro swaps.

“From a historical perspective, Swedish covered bonds look attractive compared to European peers and euro denominated bonds from Swedish covered bond issuers,” she said.

“Also, for a real money investor considering five year Swedish krona investments the investor gets almost double the yield if investing in a four to five year Swedish krona covered bond compared to a Swedish government bond.”