Tap auction : SEK500m SGBi3110 (1 June 2019) and SEK500m SGBi3102 (1 Dec 2020).
We remain cautious about longer real rates as we said in the latest report (21 October) . We have been recommending BEI curve flatteners for some time but we have now reached our profit target in the SBi3107/SGBi3102 BEI flattener. The BEI box has moved from 42.5bp to 18.5bp. However, the profit when adjusted for the negative inflation carry amounts to 15bp.
Now we collect the profit and strip away the nominal bonds from the BEI flattener. We keep the position in linkers and thus suggest to take position for a steeper real rate curve. We recommend buying SGBi3107 (June 2017) or SGBi3110 (June 2019) and sell SGBi3109 (Jun 2025) in a real rate steepener .
CPI inflation will gradually climb higher over the coming months and peak in January when tax hikes in electricity and petrol affect the headline index.
Normally, we see shorter BEI rates in tandem with spot inflation. Hence, we expect short-dated linkers to continue to outperform.
The 5Y bond SGBi3102 has been well bid for some time now and we expect demand to be good at the tap auction. The SGBi3110 together with the shorter SGBi3107 are our favourites and we expect the bond SGBi3110 to also be in good demand at the auction.
We expect good demand at the auction as the offered bonds are in the 'right' segment .
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