HALISTER1: Receive NOK 5y5y vs SEK 5y5y as Spread May Compress: Danske Bank

Receive NOK 5y5y vs SEK 5y5y as Spread May Compress: Danske Bank

(Bloomberg) -- Danske Bank recommends receiving NOK 5y5y swaps and paying SEK 5y5y as low Norwegian inflation may trigger an end to the upward trend in the spread, strategist Jostein Tvedt writes in a note.
  • Spread is at its highest level since September 2015 in the aftermath of the oil-led Norwegian business cycle downturn
    • NOTE: Strategist uses 6-month rates on the floating legs
  • Norges Bank’s own projection indicates inflation at end-2020 as low as 1.5%
  • Sees a real probability of a lowering of the inflation target this spring and the first upcoming possible date is tomorrow, when the government presents its Perspectives 2017 report
    • A lowering of the inflation target should lead to a decline in the long-end swap spread versus international peers
  • A key risk to the strategy is volatility in long-end Swedish interest rates, and Swedish inflation below Riksbank’s expectation

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
1037Z NO (Norges Bank)

People
Jostein Tvedt (Danske Bank A/S)

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