After the Riksbank cut last week the 5s10s curve steepened but admittedly the original reason for establishing the curve steepener relied on the notion that longer interest rates should inch a bit higher. However, the recent market developments make us a bit hesitant. For instance, European macro data seem to have softened a bit recently.
Swedish rates tend to trail the German ones and with German 5s trading only a mere 15bp above the Refi rate, a further decline in interest rates will most likely result in flatter 5s10s in Germany. This poses a risk to our curve steepener despite the fact that the Swedish 5y segment looks more attractive along the domestic yield curve compared to the situation in Germany. Hence, we close our 5s10s steepener 1y forward in swaps and collect a profit of 8bp.
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