HYBRIDS: AroundTown: Perp NC5.6 (ARNDTN; NR/BB+/NR)

SEK swap rates are down 3bps to 1.99% following the rate decision off knee-jerk lows of 1.98%.  A reminder that the decision was near enough a 50/50 between a cut and a hold. That’s filtered into some very light SEK weakness. The muted market reaction is fair – one more 25bp Riksbank cut was fully priced over the next few months, today’s decision just brings that forward.

• The September MPR rate path is flat at 1.75% through to Q3 2026 before starting to slope upwards. We had wondered whether the Board would include some implied probability of another cut after today’s rate move – but clearly that would complicate the message that this is likely to be the last cut of the cycle barring any unexpected shocks.
• The rate path slopes upward at a steeper rate than in June, back above 2% by the middle of 2028. We suspect that this reflects the more expansionary fiscal stance following the 2026 budget, but as always caution reading into the mid/long-end of the path as a policy signal (it’s the output of staff models, and not “owned” by the Executive board”).

Additional decision on the balance sheet

• "To maintain a good ability to trade bonds quickly, the Riksbank decided in November 2024 to establish a securities portfolio of Swedish nominal government bonds totalling SEK 20 billion. To facilitate efficient trading, the Riksbank has now decided that the holding will be allowed to fluctuate between SEK 18 and 22 billion. The portfolio will also be complemented by the ability to conduct repurchase agreements in the form of repos and reverse repos."
• "The Riksbank will conclude its ongoing sale of Swedish nominal government bonds when the securities portfolio reaches a value of SEK 20 billion. This is expected to happen in December 2025. After this, the Riksbank will start trading in the securities portfolio. Further information will be provided towards the end of 2025."

We discussed in our preview Governor Thedeen's recent speech on the balance sheet and SEK excess liquidity. The speech set the stage for some tweaks to the Riksbank's secondary rates, which we anticipated could come in November or December. This announcement guides towards more details in Q4. See our preview for more details

A more mixed German flash PMI September report than French (which disappointed across the board). Manufacturing disappointed by 1.5 points at 48.5 (50.0 consensus, 49.8 prior) but services surprised by 3.0 points to the upside at 52.5 (49.5 consensus, 49.3 prior) with the composite output index at 52.5, 1.8 points above consensus (50.7 consensus, 50.5 prior). The latter is the highest for 16 months. In contrast to France, where both input and output prices cooled, they picked up in Germany - with output prices increasing at the fastest pace for six months. The market is proabably reacting to this part. The new orders part was very confusing in the press release which seemed to contradict itself a few times. See below from the press release:

• "Input cost inflation ticked up for the second month in a row in September, taking it to its highest since March. The result reflected a stronger increase in service sector operating expenses, with purchase prices faced by goods producers falling at a quicker rate than the month before."
• "The rate of increase in output prices likewise ticked up at the end of the third quarter, bringing it back broadly in line with its long-run average. As with costs, the stronger rate of output price inflation was driven by the service sector, which saw the greatest increase in prices charged for six months."
• "There were, however, signs of fragile demand, with the latest data indicating a broad-based decrease in inflows of new work. Employment also fell in both monitored sectors, amid a general weakening of business expectations for the year ahead."
• But this sentences seems to contradict: "The stronger performance at the end of the third quarter reflected a renewed increase in service sector business activity (index at eight-month high of 52.5) that followed a slight decrease in August. Here, surveyed businesses often commented on the start of new projects."
• And then this one contradicts again: "A lack of new business was a general theme across the private sector in September. Inflows of new work were down in both manufacturing and services, with the former recording its first decrease in four months and one that was the most marked since January."