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Swedish Rate Wrap

Swedish Rate Wrap — Repo rate? Keep an eye on the ECB

In early July, the Riksbank announced a repo rate decision that was more or less in line with our expectations. Even though the probability of an even lower rate was removed from the repo rate path, the central bank is hedging its bets by writing that the repo rate may be lowered if the situation changes. For us, the tactics are clear: the Riksbank's normalisation process is dictated by the actions of external players, particularly the ECB. In our view, the repo rate will be lifted in April 2018, marginally earlier than signalled by the Riksbank. For more details, see page 3.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Summer in a perfect world

With midsummer just round the corner, stock markets are at record highs, implicit volatility is at a record-low level, and bond yields are slowly but surely ticking downward. Neither the Fed's rate hikes nor the promised balance sheet reduction appears to be giving investors any qualms. A declining oil price is the clearest threat to a peaceful holiday period.

The half-year accounts are approaching for the Riksbank, with its repo rate decision early in July. Inflation and inflation expectations have moved in the right direction in the first half of the year, but it is far too early for the Riksbank to move clearly towards normalisation. Both the repo rate and the bond purchase programme will therefore remain unchanged. However, we believe that the likelihood of the repo rate falling further via the repo rate path will disappear.

Changes in the measurement method for package holidays have had a favourable impact on inflation during the spring. However, we think that this will be reversed in the autumn.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Brighter prospects for the European banking sector

The banking sector in the eurozone has long been struggling with structural problems. A high proportion of non-performing loans, low capitalisation and bank-specific trouble spots have hampered lending operations. A solution is now close at hand for the Italian bank Monte Dei Paschi, while the Spanish problem bank Banco Popular has been taken over. The sector as a whole is also moving in the right direction and the economic recovery in the eurozone is providing support. 

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — The sun is shining on mortgage bonds

Weather-wise, spring has not been everything we might have hoped it would be. However, Swedish mortgage bonds have resisted the chill and performed strongly. Now that the warm weather appears to have finally arrived, we see a number of reasons why mortgage bonds may continue to be warm. We retain our "long" recommendation. 

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Global crossroads and new domestic target?

Global crossroads and new Riksbank target
We have identified three driving forces behind the strong global industrial business cycle: stimulus measures by central banks, a rising oil price and stimulus measures from Chinese authorities. All three are temporary and in the absence of new stimuli, the positive effects already appear to have reversed. We go through the arguments and conclude that global bond yields have a limited upside, and we change our recommendation from short to neutral.

April inflation figures were a positive surprise, involving significantly higher inflation than expected. But few things last for ever, and we expect lower inflation in the future. In line with expectations, the Riksbank proposes to move to CPIF as the target variable and introduce a tolerance interval ±1 percentage point around the 2% inflation target. Our conclusion is that this warrants no change in the near-term outlook for monetary policy.

Andreas Skogelid, Strategist | ansk03@handelsbanken.se

Swedish Rate Wrap — Once again, the Riksbank surprises

And so the Riksbank did it again: surprised the market by making monetary policy even more expansionary by increasing bond purchases for the remainder of 2017 and by pushing back the repo rate path. Our risk scenario had identified increased bond purchases, but we thought that the Riksbank would have a dovish tone rather than taking sharper measures. If we dust off our crystal ball and look toward 2018, we see an interesting situation arising when it is time for many of the Executive Board members to be replaced, given that the Board was as split as it is possible to be when taking this past week's decision.

We review our recommendation for mortgage bonds and see further scope for narrower spreads in the future. For more details, see page 4. 

Andreas Skogelid, Strategist | ansk03@handelsbanken.se