This week the 10-Year bond SGBi3109 is tapped, SEK1bn. On the back of the collapse in oil prices, European break-even spreads have been hammered, with near panic market movements on some days. Even though Swedish BEI spreads have outperformed German ones, Swedish BEI spreads have been severely hit as well, with shorter BEI spreads at levels only surpassed during the 2008 financial crisis. The short end has been disproportionally affected and the BEI curve has continued to steepen.
Perhaps on the back of the large index extension we had last week, forward break-even spreads, beyond 5Y, have been surprisingly resilient. We still have a hard time accepting the combination of very low forward real rates and forward inflation near the Riksbank target. In our view, long-dated linkers are likely to underperform over the coming months as demand for duration eases.
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