Dovish Norges Bank and little market impact from Swedish general election expected

The general election in Sweden points towards a change of government from the centre/right “Alliance” towards the Social democratic and Green Party coalition supported by the Left party.

We doubt we will see any significant market impact of the election result. Note though that the likely change of government could result in a higher rate of inflation due to the tax and VAT changes proposed by the parties to the left.

The Swedish DMO will tap in the 5Y benchmark SGB – SGB 5% ‘20. Given the continued focus on ‘low for longer’, demand should be decent.

In Norway all attention will be on the Norges Bank rate decision on Thursday. Everything but unchanged rates will be a major surprise. Hence, all focus will be on the accompanying rate path that we expect to be lowered by up to 20bp end 2017. We also believe that the Norges Bank will continue to see a small probability of a rate cut in 2015. Both things will be considered “dovish” and the decision is expected to push market rates lower and could also temporarily weigh on the Norwegian krone.

In Denmark, the coming week will see a major revision of the annual national accounts as Statistics Denmark implements ESA 2010, a new system of accounts intended to ensure greater consistency across the EU member states.

In Denmark, the Debt Office is tapping in the 2Y and 10Y benchmark – we continue to see solid demand for the 10Y benchmark (DGB 1.75% ’25) given the pick-up to Germany as well as the limited positive net cash flow in Denmark in Q4. The 2Y bond (DGB 2.5% ’16) is trading with a negative yield, but given the possibility of an independent rate cut by the Danish Central Bank (EUR/DKK has dropped ‘well’ below the central parity at 7.4608), DGB 2.5% ’16 is the best bet.