DCSIMG

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

FI Eye-Opener: No support can survive constant pounding

German 10-year yield finally broke important support – mood remains bullish. A correction higher in yields still looks likely today. US equities recover after early losses. Q1 effect hits Chinese GDP numbers again. Ukraine’s military starting to use force US core inflation bottomed out? Euro-zone inflation and US housing market data ahead – Germany to sell 10-year bonds.

China: The impossible duality

China’s Q1 GDP growth of 7.4% was marginally higher than market consensus. It was caused by a combination of cyclical slowdown and structural shift away from the traditional growth drivers. Beijing is likely to continue the fine-tuning policies and stays away from large-scaled stimulus.

Euro Rates Update

The latest Euro Rates Update is now available

Swedish Morning Briefing - Tuesday 15 April

• Obama warns Putin • Ukraine raises policy rate

Competitiveness of the Nordics

Financial crisis and subsequent Euro crisis have cast doubts on the future prosperity of the Nordic countries. This report takes a closer look at the competitive position of the Nordics over past ten years and aims at answering how worried these countriesshould be.

FI Eye-Opener: Still going lower

Bond yields rebound, but bonds with more performance potential left. Intra-Euro-zone spreads narrow. Equities rise – more downside potential in the near term. US retail sales beat expectations. Eyes on US CPI and Yellen’s speech.

EM FX: Ukraine takes the headlines again

The Ukrainian President's deadline for rebels occupying state buildings in Eastern Ukraine to lay down their weapons have passed. Markets are awaiting news. EM FX is slightly weaker this morning, especially the RUB, the PLN and the TRY, but it seems that markets are becoming more resilient to headline news from Ukraine.

Swedish Morning Briefing - Monday 14 April

• Brighter outlook for global growth • Swedish finance minister worried about inflation

FI Eye-Opener: Please stop strengthening, we are asking nicely

Bonds with more gains on Friday – German 10-year yield to break lower today. Finnish bonds feeling some pressure after a negative outlook by S&P. Correction lower in equities has further to run. ECB fights the stronger currency with words – and talks further about QE. LTRO payments continue coming in – ECB more concerned about the rising euro. US retail sales & inflation, Chinese GDP and corporate earnings ahead. New French 2-year benchmark out this week.

Week Ahead: 12 - 25 April 2014

We cover two weeks in this Easter edition of Week Ahead. Important data prints from China, US inflation, PMI's, German Ifo and more...

Global FX Strategy: QE-nomics

Despite the QE-rumours, we still believe that the EUR has some upside left versus the USD short term. Find out why in this edition of our flagship FX publication, alongside views on NOK, SEK, JPY, AUD, CAD, NZD and Emerging Markets currencies. Enjoy!

European FI Strategy: Mad about QE

Euro zone QE talks all over the place, but there is still room for curve flattening and demand continues to be strong, also for Scandies. Find out what we favor in this month's edition of European FI Strategy.

Swedish Morning Briefing - Friday 11 April

• Finland – S&P affirms AAA but lowers outlook to negative • Nasdaq sees largest decline since November 2011

Finland: King of ratings no more

The credit rating agency Standard & Poor’s surprisingly changed its outlook for the AAA rating of Finland from stable to negative, the first major rating agency to do so. The action puts more pressure on the already shaky government and will deliver a hit to Finnish bonds, very dependent on the highest ratings.

FI Eye-Opener: Bye, bye, Finnish AAA?

Bonds with a big rally yesterday – curves bull-flatten. German 10-year yield gathering momentum to break lower – a correction higher in yields still likely today. Finnish credit rating starting to feel pressure – more pressure for the shaky government. Huge demand for the new Greek benchmark. US consumer confidence and IMF Spring meetings ahead. Italian auctions concluding a busy supply week.

Northern Lights: Goldilocks?

Following this morning’s CPI figures, the Riksbank is widely expected to cut rates. But how can you trade SEK and Swedish Rates in this environment? Find out more on that, alongside updated views from our macroeconomists and strategists across the Nordic region. Northern Light gives you everything you need on Scandinavian Macro, FX and Fixed Income. Enjoy!

Comment Norway: Inflation on the upside

• March core inflation at 2.6% up from 2.4% last month • Above Norges Bank and consensus at 2.5% and Nordea at 2.4%

SEK FX & FI Strategy - Market commentary

Market commentary in the wake of record low CPIF inflation

Sweden: Historical low inflation favours a rate cut

March CPI came out much lower than forecast. CPI remained unchanged on the month while it was widely expected that the CPI would rise by 0.3% on the month. We, the Riksbank and consensus had all the same forecast. Needless to say, this strengthens the view that the Riksbank will cut rates in July.

Denmark: Another round of very low inflation

Danish CPI-inflation rose by 0.4% y/y in March vs. 0.5% in February. This was much lower than expected (consensus 0.6%, Nordea 0.7%).