Safe bonds, risky debt? Covered bonds and the financialisation of housing in Sweden

Contributing to the literatures on housing financialisation and financial geography, this article examines the growth and role of covered bonds in fuelling housing financialisation in Sweden. Lauded as safer and more efficient alternatives to residential mortgage-backed securities, covered mortgage bonds – on-balance-sheet debt securities issued by banks to fund mortgages – provide investors with robust protection through dual recourse to both the issuing bank and the segregated ‘cover pool’ of mortgage assets. While the structure of these instruments provides a derisking function for bondholders, they simultaneously reconfigure the architecture of housing finance in permissive mortgage regimes, such as Sweden’s, by intensifying the supply of mortgage credit in highly leveraged urban centres and concentrating credit risk on the balance sheets of domestic banks. Drawing on the historiography of regulatory change, policy debates and interviews with stakeholders, the article investigates how, despite resistance from state authorities, Swedish finance lobbyists were able to successfully frame covered bond legislation as essential to maintaining international financial competitiveness. The Swedish case illustrates how the interplay between the structural power of domestic financial elites and European financial integration, mediated through national policy settings, reshapes housing and finance systems, deepening systemic interdependencies between the financial system, households and the state, while reconfiguring the geographies of financial risk.