Swedish investors have unprecedentedly large overweight positions in covered bonds and many plan to increase holdings still further, according to results of a survey published yesterday (Thursday) conducted by SEB in the past week.

A record 84% of investors claimed to be overweight Swedish krona covered bonds, an increase from 64% in December. Only 4% now say they are underweight, down from 14%. A further 12% claim to be neutral, compared with 23% in December.

Forty percent of investors said they were likely to increase their exposure to covered bonds in the next three months (up from 35%), whereas 8% expected to decrease their exposure, while 53% intended to leave their positions unchanged.

Swedish covered bonds have tightened significantly versus swaps by 10bp-15bp, noted SEB, “partly due to the pick-up in risk appetite and partly to a much brighter supply outlook for 2012 compared to 2010-2011”, it said.

SEB did not expect the overweight positioning of investors to prevent further spread tightening over coming months because the net supply of Swedish covered bonds will be much more limited this year than during 2010-2011.

Declining volumes in covered bonds had been identified by SEB in November when the bank said it expected issuance to continue to fall after gross covered bond supply in 2011 amounted to Skr500bn (Eu55.3bn), compared with Skr700bn (Eu77.5bn) in 2010.

“With 40% of respondents planning to increase exposure over the next three months,” said SEB in the latest research, “demand should be sufficient to absorb new issuance.”

The survey also found that over the next three months, supply/lending growth, followed by funding costs and banks’ CDS development, were seen as the most positive influences on covered bonds. Swedish house prices were deemed most negative. Positioning/foreigners’ interest was perceived as largely neutral. At the time of the last survey, funding costs were regarded as the most negative factor for Swedish covered bond spreads.