We now think that the probability of the Riksbank expanding and extending its current QE programme at its monetary policy meeting next week (Thursday 21 April at 09.30 CEST) has fallen below 50%. The reason for the shift in our opinion is that Deputy Governor Cecilia Skingsley has clearly expressed a view that the strong economy and rising inflation provide respite for the Riksbank and that it is 'time to look further ahead'.
We still think one should be careful not to rule out further stimuli later in the year given that we still see very muted inflation this year. Indeed, the Riksbank may have a hard time reaching the inflation target if the SEK appreciates after the Riksbank meeting on Thursday should the market start to price in "end of easing" in Sweden.
There is very little on the agenda in Norway this week. Hence, the market is likely to take its clues from the ECB and the Riksbank decisions. Remember, 'foreign rates' play a pivotal role when Norges Bank models its own rate path.
Norges Bank will sell bonds this week. We expect yet another tap in the 10Y bond (announcement Monday). The higher oil price, which has created a more positive outlook for the NOK, might help attract foreign interest. The same should apply to the outright level as not many triple-A countries in Europe offer a 110bp pick-up to Germany in the 10Y segment.
The Danish Debt Office will tap once again in the 2Y and 10Y benchmark bonds. DGBs have recently performed as the EUR/DKK has edged lower as a consequence of Denmark not mirroring the ECB rate cut and QE expansion in Q1 and because Denmark may be seen as a potential safe haven currency if the UK referendum ends with a Brexit. On top of that, the short end of Denmark (2Y DGB) offers an extra pick-up for foreign investors (USD, GBP,EUR, SEK etc.) that hedges the purchase with an FX forward given the Danish currency basis. Hence, all in all, we expect to see a decent demand for both the 2Y and 10Y bond this time.
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