Riksbank could end QE by year-end – Danske Bank

Analysts at Danske Bank assessed the prospects for the Riksbank in light of its meeting later in the week.

Key Quotes

“Our tactical view on Swedish rates is based on the assumption that the Riksbank ends QE (but continues to reinvest coupons) by year-end end but that the announcement will wait until the December policy meeting”.

“This would allow the Riksbank to weigh up what the ECB says about its QE programme after year-end. During the life of the QE programme, the net supply of government bonds to private investors has been negative, thereby squeezing the time premium across the curve but mostly in longer maturities”.

“Provided that the Riksbank stops QE, net supply would shift to positive and this supply would have to be absorbed by private investors (i.e. rather than the Riksbank). In our minds, this will require a gradual increase in risk premiums – in other words, gradually higher rates and a steeper curve. We think this will also affect the swap curve (and real rate yields curve) in a similar fashion”.

“We do not expect any change to the repo rate forecast. One thing to monitor though is whether anything more specific is mentioned in the report regarding recent signals of a cooling housing market but maybe this is an issue that is more likely to be raised in the next minutes (9 November)”.