POV (1/2): We think that the Riksbank......>

RIKSBANK: POV (1/2): We think that the Riksbank decision tomorrow has been

oversimplified by some. In our view, the market reaction even in FX will not

simply be a function of how much the repo rate path changes and that it will be

equally important how the Riksbank handle the QE reinvestment decision.

- The Riksbank has said that it will announce its plans regarding the potential

reinvestment of SGB1047 (the government bond maturing in Dec 2020). The Riksbank

hold SEK62bn of this bond and previously it has reinvested in advance of the

maturity so that the stock of bonds held never falls below the target.

- If the Riksbank was to reinvest the full amount in advance, it would hold

roughly 60% of the whole SGB market with a notable extension to duration for the

portfolio.

- The sell-side, even amongst local banks, is split.

- On the dovish side some expect full reinvestment with the repo rate path

showing the next hike pushed back to next year.