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Strategy Sweden: Sell SGB1052 In ASW Spread

Published 03/24/2015, 06:40 AM
Updated 05/14/2017, 06:45 AM

Sell SGB1052 in an ASW spread @ -40bp. P/L: -30bp/-48bp. 3m carry/roll: +2.5bp.

The Riksbank bond purchase programme has moved ASW spreads 15bp wider in the 10- year segment (SGB1058). In the 2-year (SEGB1051) and 5-year segments (SGB1047) the ASW spreads have only widened by 2bp and 8bp respectively. The main reason for this flattening of the ASW curve (or the steeper spread over curve) is, in our view, the 'zero yield boundary' for ASW spreads. We expect the appetite among end investors to fade as the bond trades close or below zero, see chart 1 below. Bonds that trade with a negative yield are by nature less attractive (few end investors are probably ready to sign up for a loss). The ASW curve is negatively sloping up to the 5-year segment and beyond that point more or less flat. Chart 2 shows the ASW curve versus yield level in the bonds.

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