Strategy Sweden: On the radar

Transcription

1 Strategy Sweden: On the radar This publication is a summary of interesting market related topics and observations that have been covered and discussed within the Strategy Research Sweden group, but not necessarily yet formalized in form of a specific view or trading idea Themes in this edition: - SEK rates: switch in focus from near-term cuts to future hikes - SEK rates: a factor than could flatten curve more than fwds - SEK rates: supply in at a premium instead of a discount May 2016

2 Chart of the week: front-end curve should be rolling steeper As the Riksbank has already started tapering and the market in process of boxing in the next Fed hike in too distant future, front-end SEK curve should be gyrating between different probabilities of rate hikes in Over the summer, the FRA curve have potential to roll steeper, pulling the yield curve curvature with it (higher y rates versus 2y & 10y) 2

3 Trades on the radar Strategy view on direction and curve: We are neutral on near-term direction of global bond yields. Swedish 10y government bonds stick out as cheap relative to core Eurozone. Swedish yield curve also sticks out as overly steep relative other markets. We have a bias to favour curve flatteners, but cost-of-carry make timing difficult. Trade idea Date Comment New Govies: Short 1047 vs 102/101 & 109 (b-fly) -May This publication New Kommuninvest: Long K2012, short Shyp 84 -May This publication Active Govies: Long SGB 109 vs OAT 10y benchmark 18-Apr SEK rates: two trade ideas ahead of Riksbank meeting Active Linkers: Long SGB 103 vs SGBi 3111, long US 20y BEI 18-Apr SEK rates: two trade ideas ahead of Riksbank meeting Active Kommuninvest: buy KI 1708 vs swaps 9-Mar SEK rates: front-end municipals cheap Active Frond-end: receive SEK FRA Dec16, pay RIBA Mar17 12-Feb SEK rates: have a look at receiving FRA Dec16, pay Mar17 RIBA Active Govies: SGB 108/103 flattener 3-Nov SEK rates: steep 10y+ govie curve The list of trade ideas is up-to-date around the date of publication. The column Date shows the publication date in which the trade idea was initially listed. It does not necessarily reflect our view on the optimal entry date. When a trade is removed from the list, it will be marked accordingly. Obviously, the date of removal/publication does not necessarily reflect our view on the optimal exit date. 3

4 SEK rates: switch in focus from near-term cuts to future hikes Riksbank s path implies steeper m-mkt curve. High resource util, strong turn-out data H2 and Fed hikes in play again make it is reasonable to believe we will roll into a steeper curve by end of summer. Instead of pricing probabilities for cuts, market may switch to pricing probabilities for hikes. As US economy approached what could be considered normal resource utilization in 2014, curve steepened for roughly 12 months Sweden in a similar situation currently: close to or higher than normal resource utilization Add to this higher growth momentum and a more stimulative monetary starting point in Sweden today compared to US in 2014 no doubt tighter financial conditions warranted through a stronger SEK AND a steeper front-end curve such as Dec16/Dec17 FRAs Selling the belly in 2//10s butterflies an alternative implementation that goes well with cooling in the housing market 6 FRA Curve 1-th Dec17/Sep16 according to to RB's Swe gov 2//10s, rhs RB s rate path Nov13 Jun14 Dec14 Jul Jan16 Aug16 Source: Nordea Markets 4

5 SEK rates: a factor than could flatten curve more than fwds There are probably many structural reasons why SEK curve is much steeper than other mkts (such as remake of UFR framework and challenge for government to achieve surplus target). Add to this higher growth & inflation together with lower policy rate than EZ (i.e. much lower real rate) and a steep curve seems obvious. But going fwd, real rate has better prospect to increase in SEK as policy become less loose and FX pulls inflation down. Higher real rates may help dampen economic activity as well as function as a motivator for a flatter curve relative other markets

6 SEK rates: supply in at a premium instead of a discount Kommuninvest s SEK benchmark program is only a few years old. As bond stock has increased, liquidity has improved as well. We believe that the premium from improved liquidity will outweigh the discount from increased bond supply. We think K-invest bonds look cheap relative covereds and see value in both front and long-end (KI 2012 vs Shyp 84, or KI 1806 vs Shyp 80 for example) 0 40 Shyp 84 minus K2012 (const-mat) Shyp 80 minus K1806 (const-mat) Oct12 Mar14 Jul Source: Nordea Markets 6 4 ASWs K-invest & covereds Percentile covereds /7% Covered 2y ASW K-invest 2y ASW 3 K Median covereds - Median K-invest TTM 3 4 Source:Nordea Markets Nov13 Jun14 Dec14 Jul Jan16 Aug16 Source: Nordea Markets 6

7 Thank You! Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S. The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results. Martin Enlund martin.enlund@nordea.com Mats Hydén mats.hyden@nordea.com Jerk Matero jerk.matero@nordea.com Mikael Sarwe mikael.sarwe@nordea.com Henrik Unell henrik.unell@nordea.com Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets. 7