Inflation-Linked Report‏

On Thursday the first Index-Linked auction will be held this year. SEK750m will be offered in the SGBi3108, 2022-06-01. Swedish BEI rates have continued upwards in the new year. Since the beginning of November the BEI 3108 rate has moved from 1.35% to 1.70%. Interesting to note is that this happened during a time period when inflation surprised on the downside, see Chart 1 overleaf.

Given the current low inflation rates, which we predict will decline even further in the spring, it seems a bit early to send BEI rates up. However, we saw the same pattern in 2009/2010, see chart 2. BEI rates moved considerably higher some six months before the inflation rate touched the bottom in that inflation cycle, see chart 3. There is one important difference this time compared to the situation in 2009/10, the krona. The rise in BEI rates was most likely an effect from the much weaker krona. The market expected the soft currency eventually to result in an import of inflation. This time the Krona has remained relatively strong.

We see the timing as favourable for going short the longer real rate bonds as BEIs have moved to relative high readings. Going forward, we expect high beta values when rates go up and low beta values when rates decline. We expect a further move higher in interest rates and that it will to a large extent be driven by higher real rates.

Even though there is plenty of room for higher real rates in Sweden, the real rate spread against Germany will hold back the level somewhat. The real rate spread (SGBi3108/DBRi 2023) is now at +45bp, which is close to highs. The current real policy rate in Sweden is roughly 1%, whereas the European real policy rate is close to -2%. Hence, this large discrepancy, at least in some part, we argue, supports a positive real rate spread also in longer maturities, see charts 4 and 5. Clearly, however, the current real policy rate spread is not an exact yardstick where longer real rate spreads should trade. This is just to demonstrate the current situation which, to some extent, explains the positive real rate spread in longer maturities.

January will be an important month for the inflation profile for 2013. As always, there is great uncertainty concerning the re-weighting of the CPI basket that occurs in January. Since 2006 there has been only one year with an upside impact from re-weighting on the month-on-month figure and all the rest have been negative. Our calculations concerning the mortgage cost component suggest there is a -0.1 percentage point impact this year, which we have included in our forecast. There is a risk, however, that re-weighting of other price components may add another 0.1-0.2 in the same direction.

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