New research from Danske Bank Markets
New Swedish pension money is disbursed once a year to the funds within the Swedish pension system (the so called PPM flows). This year the money will be distributed on 14 December (a day before the Riksbank rate decision). The total sum is SEK 36.7bn (36bn last year).
Some of the pension money is invested in non-domestic assets. Under the assumption that part of this is being hedged, we estimate that around SEK15bn will hit the SEK.
EUR/SEK reaction
Full period. Since the start in 2002, excluding the extreme year 2008 after Lehman, EUR/SEK spot has risen 0.5% the two to three trading days preceding the PPM date, been flat during the first week after the PPM date and declined 0.3% after two weeks (Chart 1).
Past five years. Discarding the early years, we find that EUR/SEK spot has risen 0.8% two to three days before PPM, then immediately started to decline and is down 0.5% two weeks after. Hence, the 'buy rumour, sell fact' pattern is the same but the magnitude is actually bigger (Chart 2).
EUR/SEK 1-month implied volatility has tended to spike, but only temporarily, in association with the PPM date (Chart 3 and 4).
The PPM money will be disbursed one day before the Riksbank rate decision. Needless to say, the decision may be decisive for how EUR/SEK will trade after the PPM date.
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