On several occasions, we have argued that one of the most obvious effects of the Riksbank's QE purchases can be seen in the ASW curve. Longer dated bonds (10Y) have been trading dear since Riksbank has been buying much of the government bond supply and shorter ASW spreads are affected by low STIBOR fixings (excess liquidity). Hence, since the purchases began, the ASW curve has moved more and more towards a negative slope. However, following the summer, we have witnessed some repricing of longer govies (10Y), i.e. a cheapening along the ASW curve (see Chart 2).
Is this the beginning of a trend where the market is pricing an end to QE? It is hard to judge but this repricing has taken place despite govies getting more expensive in the repo market. On top of this, the strong public finances this year have increased the probability of another cut in bond supply in 2017. The debt office is due to update its borrowing forecast on 26 October and we expect a cut in borrowing requirements as well as bond supply in 2017.
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