In our view, the most probable result of next week's RB policy meeting is a rate cut (up to 10bp) and an extended QE-program for another month (up to SEK30bn). Admittedly uncertainties are great though. If the RB were only to lower the rate path (as it has said it will) the market reaction may well be negative with a sell-off in longer bonds and lower EUR/SEK. In our view, the RB would not want to see that outcome so we think that if it just cut the rate it would soon have to return with further action. At the same time our positions for wider longer term break-even should offer some protection if the RB were to disappoint next week.
The Swedish FSA has postponed the idea of introducing mandatory amortisation on new mortgage debt until the legal grounds for doing so are determined. The government says that it will address this as quickly as possible and will look at various options. The postponement of amortisation adds some uncertainty but we have several reasons to keep our positive view on (5-year) mortgage bonds .
To Read the Entire Report Please Click on the pdf File Below