Finland entering the market with a new 5-year EUR benchmark

The Republic of Finland has set initial price thoughts on a new 5-year EUR benchmark at mid-swap minus 15bp area. Books are likely to open tomorrow morning. Please find below some key strengths of Finland as well as suggestions on switches to the new bond.

Despite problems, Finland enjoys numerous strengths

Finnish economy has not had it particularly easy lately, and there is no denying the fact that also Finland is in dire need of structural reforms to tackle the challenges ahead. That said, Finland remains well-positioned relative to most other Euro-zone economies and still has good prerequisites to reform the economy.

Among the key strengths of Finland are

  • The only Euro-zone country having a AAA-rating with stable outlook from all the three major rating agencies
  • General government debt of 53% of GDP (in 2012), well below the Euro-zone average of 92.7% (or 81.9% for Germany)
  • The economy exited recession already in Q1 of this year
  • Healthy banking sector
  • Lowest CDS level among Euro-zone countries
  • Relatively low share of exports going to the Euro zone (32% in Jan-May 2013)
  • Consensus-based political culture and a culture of paying back what is owed
  • Commitment to a welfare state (preparedness to pay relatively high taxes)
  • Educated work force


Switch suggestions

As often the case, Finnish bonds have cheapened ahead of the launch of a new bond. Currently, Finnish bonds offer roughly 30bp of pick-up over Germany in the 5-year sector, while they are slightly more expensive vs Austrian and Dutch bonds.

It is notable that Finnish bonds are trading at more clearly expensive levels in the 10-year sector of the curve compared to Dutch and Austrian bonds, while the 5Y spreads are much narrower. In other words, the 5-year sector of the Finnish curve currently looks quite good.

After the recent move higher in rates, maturity extensions offer more pick-up again.

In light of the above, especially switches from the following bonds into the new bond look interesting

  • 3-5-year German bonds, which look expensive on the curve, e.g. OBL 164 0.5% Oct 2017
  • RAGB 4% Sep 2016
  • NETHER 0% Apr 2016
  • 2-5-year Finnish bonds, e.g. RFGB 1.75% Apr 2015


Selected bonds vs swaps prior to the launch of a new Finnish 5Y benchmark

ASW 2013-0827

Source: Nordea Markets and Reuters

Latest research

Euro Rates Update

The latest Euro Rates Update is now available

Morning Briefing - Tuesday July 22

Japanese government cuts GDP forecast Pro-Russian separatists hand over black boxes to Malaysia

FI Eye-Opener: Searching for inflation

Core bond yields edge further down – geopolitical tensions continue to support bonds. Equity markets feeling pressure. More sanctions on Russia in the pipeline. US inflation pressures finally picking up? Belgium to sell longer bonds.

Morning Briefing - Monday July 21

Growing pressure for further sanctions against Russia Israel steps up ground offensive in Gaza

While you were busy...

If you are just back from holiday, here are a few bullets on what happened while you were busy…

Euro Rates Update

The latest Euro Rates Update is now available

FI Eye-Opener: Markets too upbeat on Europe?

Bond yields end a bit higher, but near-term upside still limited. US equities with a clear rebound – resistance in sight. Money market rates rise on higher LTRO repayments. More warnings on markets being too optimistic. US inflation numbers and Euro-zone PMIs ahead. Supply action easing – more coupon and redemption payments ahead.

FX: the EUR trap

Is Europe next Japan? Hopefully not. ECB and releveraging implications for EUR.

Week Ahead: 19 - 25 July 2014

US CPI inflation will be out on Tuesday . China and the Euro-zone will present PMI figures. On Friday the German Ifo indexes is released. The BoE will deliver minutes from the July meeting and UK GDP figures will be out on Friday

Swedish Morning Briefing - Friday 18 July

Passenger plane downed over eastern Ukraine Israel launches ground offensive in Gaza

FI Eye-Opener: Increasing tensions to push German yields to new lows

Bonds continue to rally – yields in several semi-core countries hit record lows. Equities suffer a beating. Chinese home prices continue to fall. Geopolitical concerns take centre stage ahead of the weekend. German 10-year yield about to fall to new lows. Mixed US data – Bullard sees early rate hikes. No ABS purchases from the ECB for a long while. US consumer confidence and euro debate ahead.

Bulgaria: Two bank runs and a bankruptcy

Bulgaria experienced a run on two of its biggest banks in late June, leading the central bank to close the fourth-largest bank in early July and start criminal investigations against several people. Moreover, the bank runs may have been the final push for the government to call early elections and have pushed the country into talks with the ECB to take over supervision of its banks and with the EBA to review the central bank’s banking supervision. Banking sector risks are obviously elevated!

Bonds: This bubble will keep growing

It seems everywhere you look nowadays, you see a bubble. That is not true of course, but based on many headlines, you could be fooled. The bond market is no exception, and it has received its fair share of bubble talk. If it is a bubble, it will keep growing in the near future.

Turkey: 50 bp cut this time

A 50 bp rate cut this time. More could come if risk sentiment remains decent and the TRY does not weaken further.

RUB: again under pressure after US and EU sanctions

RUB is again under pressure after US imposed sanctions on Russian companies.

Swedish Morning Briefing - Thursday 17 July

No new foreign policy chief after EU summit US and EU boost sanctions against Russia

FI Eye-Opener: Another round of sanctions

Bonds continue to see strong demand. Portuguese bonds rally hard. Core bonds to continue to perform today. European equities with considerable gains yesterday. Fresh sanctions on Russia taking a toll on already weak economies. EU leaders fail to agree on top posts. Final Euro-zone inflation and US construction data ahead. Spanish and French supply.

Sweden: Riksbank’s minutes soft as expected

Today’s minutes did not add much new information regarding the reasons for the rate decision. As indicated by the rate path, the discussion confirmed that 0.25 is not a floor for the repo rate.

China: Growth momentum picks up

Chinese GDP numbers were slightly better than expected at 7.5% y/y in Q2 (Nordea: 7.4%; consensus: 7.4%; previous: 7.4%). The batch of monthly numbers - investment, industrial output and retail sales - were also released this morning. Most were fairly close to expectations or slightly better. We could see slightly better numbers out of China in the coming months, but seen in a longer perspective, we still believe the Chinese economy is slowing and rebalancing gradually.

Swedish Morning Briefing - Wednesday 16 July

Minutes of Riksbank meeting due at 9.30 Fed president believes in higher rates soon