Position for a steeper 5s10s curve in NOK swaps versus a flatter SEK swap curve
Entry level: -10.25bp, target: +15bp, stop at -25bp, Carry & Roll: -1.5bp/3M
NOK swap curve to steepen as Norges Bank signals easing bias
The rate path indicates that Norges Bank sees a 50/50 probability of a rate cut at the March meeting. Furthermore, the rate cut came despite mainland GDP growth ‘only’ being revised lower to 1.5% in 2015. We believe that the market will question the forecasts of Norges Bank and the forward curve for the oil price is already more than USD5 below Norges Bank’s assumption. These factors mean that Norges Bank could still face negative surprises over the next two quarters.
For the rates market, it implies that the market should price in at least another two rate cuts on top of the cut yesterday, in our view. Hence, we still see downside for NOK 2015-2016 FRAs and we see room for a ‘bullish’ steepening of the NOK swap curve 5s10s.
Swedish swap curve should continue to flatten
The 5Y SEK is already very low. It trades flat to the 12th FRA contract, 0.65%, and the downside is likely to be limited as the policy rate was cut to zero in October. In order to get some yield, investors need to go further out on the curve. Moreover, we see a few supportive factors in the market for the flattener.
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