Receive 2y1y Ahead Of Riksbank Announcement

Published 07/02/2015, 12:32 AM
Updated 05/14/2017, 06:45 AM

Receive 2y1y @ 67.25bp. Roll down: +4.5bp/m. Profit/Loss: 45bp/85bp.

Our base case for tomorrow's Riksbank policy announcement is an unchanged repo rate. However, this does not mean that there are no opportunities to exploit relative to market pricing. The market is pricing a policy rate close to the Riksbank's repo rate path. In our view, this is too optimistic and mainly a consequence of the bond sell-off in May. At the Riksbank announcement tomorrow we see a clear risk that the inflation forecast will be shifted downwards and, as a result, that the repo rate path will be lowered. This time it can have repercussions for market pricing and might trigger money market rates to decline (since pricing is in line with the Riksbank). Moreover, a rate cut cannot be ruled out and would of course be beneficial for the trade.

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