• Markets expect rate hike from the Fed
• Higher inflation reading in the eurozone
• Reduced political risk behind yen weakness
• In focus: Norges Bank to press ahead with a rate hike in September
Following a period with all eyes on the Italian crisis, attention is now turning toward the far north and the ECB meeting in Riga. Italy could actually induce a hastier decision on tapering the QE programme. We repeat our belief that the programme will come to an end in December this year.
For the Riksbank, most indications suggest a rate hike before year-end, in line with the repo rate path. Inflation outcomes in CPIF terms will be substantially higher than Riksbank forecasts, given current energy prices. Even adjusted for that factor, we believe inflation will land at or above the Riksbank's path, suggesting that the market will gradually price in a greater likelihood of a rate hike. Higher inflation should result in a widening of Swedish bond yield spreads relative to Germany.
- Large duration changes in HMSA50 and HMSA10 because SGB 1060 becomes shorter than 10y and SGB 1061 is included in HMSA10
- Included bonds: SGB1061, SCBC144, SEB 576; Excluded bonds: Spintab 188, LHYP 512, NB HYP 5530, SEB 572
- Indices will rebalance 2018-06-08
• Major risk of Italian snap election impacts the euro
• Swedish National Debt Office positions itself for stronger krona
• Slowdown in the European business cycle
• Interesting referendum in Switzerland
• In focus: Italy - a foreign country
Last week's Purchasing Manager Index confirmed the slowdown in the global manufacturing cycle and the increasing divergence between the US and the rest of the world.
Growing concern about political developments in Italy caused the market to dust off the PIGS theme, which in turn caused a considerable drop in Swedish bond yields. As a result, the curve is now the flattest it has been in a long time. We therefore change our view of the curve from flatter to neutral.
- SEB will introduce 576; matures on December 20, 2023
- The coupon is 1%; ISIN SE0010049841
- Pricing at 26-27bp over swap; matched maturity