We have become cautiously positive on Swedish government bonds based on low Swedish inflation, poor economic data, the Riksbank keeping rates "low for longer" and the supply situation.
We expect further performance for 10y Danish government bonds, and see the auction on Tuesday as a good opportunity to buy the 10Y. As argued last week, the key argument behind this somewhat boring trade is the significant excess liquidity driven by Q4 coupons and redemptions.
The Swedish krona might come under a renewed pressure if the "low for longer" case is further being priced in Sweden. Next target from a technical point of view is 8.90 for EUR/SEK.
After a nine year low was tested in NOK/SEK we now think it is time to go against the trend and we recommend to buy the cross for a move towards the first target at 1.0895. We believe the market is in the process of pricing in a more dismal outlook for Sweden, which is already priced in for Norway. Relative core inflation supports the view that NOK/SEK is about to correct higher.
We also dip our toe into a short EUR/NOK position but recommend to use a risk reversal to take advantage of an attractive option pricing, and too avoid substantial swings in P/L from "gaps" and erratic moves still seen in the cross due to overall poor liquidity in the Norwegian krone.
To Read the Entire Report Please Click on the pdf File Below.
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Longer Lows In Scandinavia And Value In Long NOK/SEK
Published 10/14/2013, 06:22 AM
Updated 05/14/2017, 06:45 AM
Longer Lows In Scandinavia And Value In Long NOK/SEK
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