SNDO debt report take-aways

Debt office changed their forecast a bit more than we had expected, but very much in the line of current trends in macro developments. Over the period 2012-2013, the debt office now sees a deficit of 47 bn SEK (they forecasted 8 bn SEK deficit in February). Gross issuance of nominal bonds will fund half of the increase in borrowing, and issuance will be 59 bn SEK this year (50 bn in February report) and 63 bn in 2013 (53 in February report).

When looking through the details of the debt report one can note the following:

• Macro forecast is not that much revised. Some weaker growth in 2013, but at the same time a lower unemployment.
• Almost the whole revision of the borrowing need can be contributed to less tax incomes. Corporations have prepaid less tax this year than expected due to decreased profit expectations. They have also claimed back some taxes already paid, also due to worse business conditions. Households did also pay too high taxes in H2 2011 due to the unexpected rise in floating mortgage rates. Since mortgage interest rate costs are deductible by 30 % for Swedish households, Skatteverket (the tax agency in Sweden) will make unusually large pay-outs to the households this month as the final tax for 2011 is being settled. According to the debt office, this information was received at the beginning of this month and was very difficult to anticipate.  

A new 10 benchmark bond (SGB 1057) will be launched in October and the debt office will buy-back SGB 1047 and 1054 to build size in the new bond. The debt office will also buy back up to 10 bn of SGB 1041 and issue SGB 1049s to build up in the next 2y benchmark loan. Even though the buy-back amount is not that big, the fact that the SGB 1041s will be significantly shorter than 2y when the 2-Dec bond future expire (higher risk for repo rate squeeze) is to some extent justifying the current richness of 1041s (about 27 bps rich to the RIBA strip).

They also announce future buy-backs of SGB 3105 (index-linked bond) to reduce redemption size. Buy-backs are not planned until autumn 2013.

All in all, the debt office changes their forecast in line with macro development (worse government finances) but a bit earlier than we had expected due the adjustments of tax incomes from the corporate sector. No big impact in the market is expected on back of this. On the margin it may add to recent steepening trend.

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