Trade: Steepen MAR19/MAR20 and receive FRAMAR18 at 73bp. P/L: 88bp/60bp. 3M roll down: +10bp (long end: 6bp + MAR18: estimated 4bp).
How likely is it that the Riksbank will adhere to its current repo rate path (forecast) over the next 12 months? We believe it is fairly likely (more on this later). At least the likelihood of the central bank sticking to its forecast over the next year should be greater than the chances of the repo rate ending up close to its current projection of the repo rate in 2019 and 2020. Uncertainty is greater the further out in time we look and should be reflected in the term structure of risk premiums . Now, given such reasoning, take a look at the left-hand chart below showing the Riksbank's repo rate path versus market implied pricing. The distance between the two could be viewed as the risk premiums the market assigns in different segments along the money-market curve.
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