Reading Sweden's Markets
Danske Markets | Mar 08, 2013 10:30AM ET
We see a risk of frontloaded rate hikes. In the week to come, inflation and unemployment data for February may lend further support to this view.
Our forecast for CPIF inflation for the next six months is almost identical to the Riksbank’s. The weight of the inflation argument is therefore reduced.
A number of labour-market indicators are signalling that a recovery may already be underway -- we expect an unchanged unemployment rate next week.
The market underestimates the Riksbank, in our view. We recommend buying (pay) FRASEP14 and/or steepening the FRA curve, for instance JUN13/JUN15.
Trades
We reiterate the recommendations we presented in a strategy paper earlier this week:
- New: we establish a steepener on the FRA curve between FRA JUN13 and FRA JUN15. Start: 58. P/L 90/45.
- New: we pay FRA SEP14 outright. Start:1.655. P/L: 1.90/1.50.
We have closed down our break-even widener in SGBi3108 versus SGB1054 and have eliminated the long position we took in SGB1054 to protect the portfolio.
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