On Wednesday 20 May, the SNDO will introduce the previously announced new 10Y loan SGB1059. During the following four business days, switches against SGB1058 (May 2025) and SGB1057 (November 2023) will be offered – see table to the right. If the switches are successful, the amount outstanding in SGB1059 will total SEK24bn.
The new loan matures on 12 November 2026 and has a 1% coupon rate. The ISIN code is SE0007125927. In our view, the introduction of the new 10Y government bond is less predictable than with previous issues. Significant volatility in the long end does not encourage risk-taking. Even though the switch auctions will be done in a risk-neutral manner, it is worth keeping in mind that in the light of the Riksbank’s bond purchases the free float in existing loans is decreasing. SGB1057 has traded dear on the curve for a long time. SGB1058 could see a similar fate, as the loan (when correcting for Riksbank holdings) will total SEK47bn after the switches (see table on the next page). This is relatively small compared to other SGBs. Moreover, the new 10Y loan will only become the new 10Y benchmark in December 2015. Thus, investors could require a small premium to hold the new loan compared to existing bonds.
Pricing
SGB1058 is currently the dearest point on the ASW curve, whereas the longest SGBs trade with a discount. In our view, it would be reasonable to assume that SGB1059 will be slightly cheaper at introduction, since the risk of the loan being squeezed is smaller. Pricing is done using 13.30 prices as of 18 May 2015. Given these considerations, we think that a reasonable mid-pricing for SGB1059 would be 15-16bp above SGB1058. The charts below show the pricing (15.5bp above SGB1058) in True (-54bp) and Matched (-53bp) ASW terms.
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