New financial forecasts from Nordea – The Greek end-game

Markets continue to trade in lockstep with news on Spain and Greece with violent swings in yields and FX quotes. The Swedish FSA’s proposal to allow pensions to apply for a floor on discount (pushing yields sharply higher on SGBs) is interesting in the sense that it once again shows just how much the ultra long-end is affected by legislation. We keep our forecasts unchanged as we await the Greek election outcome on 17 June.

• Decision time approaching on Greece and polls are too close to call. That Greece should vote itself out of the Euro is a real risk putting continued downward pressure on the common currency and yields.
• Still, we might be naïve (or just overly-optimistic) but as there is some room for minor alterations of the 2nd Greek deal—but more likely if ND wins premiership—we still see it more likely that an agreement is made keeping Greece in the Euro. But it will be the last one.
• Risk-off to sentiment to continue after the elections but if ND wins and forms a government, we see room for a short-term risk-on move. As the Greek problems (and the problems facing the Euro-zone as a whole) hasn’t been solved, this will be short-lived.
• ECB didn’t cut rates but we expect to see a move in July.
• We now see the Fed as refraining from increasing the balance sheet (QE3) at the upcoming meeting but instead opt to prolong “operation twist” buying more long duration bonds.
• On the currency side, we’re sticking to our stronger USD long-term story but a correction short-term. We recently revised our EUR/CHF marginally lower and our EUR/NOK slightly higher as we see Norges Bank hiking rates later than previously anticipated

Read the full report below.

Steen Grøndahl, Johnny Bo Jakobsen, Anders Svendsen, Jan von Gerich, Aurelija Augulyte & Bjørnar Tonhaugen

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