Buy SGB1054 versus SGB1052 @ 30bp. P/L: 18bp/40bp. Carry/roll down: +1.5bp/3M.
Sell SGB1052 ASW versus receive RIBAMAR17 and pay FRADEC16. -26bp and -2.5bp. P/L:-18bp and 0bp/-32bp and -10bp.
Tax revenues continue to surprise on the upside amid a very strong labour market and solid private consumption. The Debt Office’s forecast for public finances for the second half of 2016 seems more and more distant and too pessimistic. The cut in bond supply announced in June could be followed by another cut at the October update (see more about public finances under ESV and bond supply later in this document. Are we nearing a real scarcity of Swedish government bonds? The Riksbank currently holds around 35% of the issued stock of nominal bonds and continues to buy, at least for the rest of the year. Foreign holdings are down to some 30% or SEK260bn (April data), which is the lowest since 2011.
At the same time, the 3M STIBOR fixing is declining and is now 10bp below the repo rate (which is -0.50%). The shortest TED spread (FRA versus RIBA) is trading negatively – the FRADEC16/RIBAMAR17 is trading at -5bp for example. This is pushed down by the FX forwards, which make USD 3MLIBOR funding, swapped into SEK, cheap. The 3MSTIBOR implied by USD LIBOR and FX forwards is roughly -1.20% for now. FX forwards have been affected by the effects of the upcoming US money-market reform and are potentially transitory.
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