BONDS: JPM Survey Points To Reduced EGB & Gilt Exposure, Deeper Peripheral OW

The long end of the ASW curve extends the outperformance seen in recent days, spreads vs. 3-month Euribor -2.2bp to +1.7bp.

• The pullback from cycle extremes in Schatz/Buxl ASW spread continues, with legacy short positions in long end ASWS being put under more pressure as the likes of Buxl ASW vs. 3-month Euribor consolidate above pre-“whatever it takes” German fiscal development levels.
• Cross-market cues also eyed after this week’s stabilisation in wider sentiment counters some of last week’s ASW widening.

The Swedish Spring budget bill included SEK11.5bln of expansionary measures (0.2% GDP), as previously announced by Finance Minister Svantesson. 

• The largest measure announced was SEK4.35bnln on “temporarily increasing the subsidy rate for the tax deduction from 30 to 50 percent”. This increase “will apply to renovations paid for from May 12 until the end of the year. The increase is intended to temporarily support the construction industry in the current economic situation. The increase can also help support the economy in general”.
• The Government projects calendar adjusted GDP growth at 2.3% in 2025 (vs 2.2% in the December forecast round) and 2.6% in 2026 (vs 2.7% in the December forecast round). These are slightly more optimistic than the Riksbank March MPR projections of 2.2% in 2025 and 2026, and may not incorporate latest tariff developments.
• The budget deficit is expected at 1.3% in 2025 (in line with Riksbank forecast) and 0.5% in 2026 (vs Riksbank 1.1%).
• On defence, more detailed proposals will be presented later this year in the 2026 budget, and after NATO sets its new defence spending targets. The Government has already said that it will increase defence spending in line with NATO guidelines by 2030, and borrow more to fund such increases.
• The press release notes that “The security situation has continued to deteriorate in Sweden’s neighbourhood and globally. This situation calls for substantial but necessary expenditures to enhance Sweden’s defence capability. Sweden will also continue to support Ukraine for as long as necessary”.

• February's private regular AWE momentum (annualised 3m/3m) is now down to 4.50% (from 4.93% in January which was revised down from 5.88% and from the recent peak of 6.46% in December which was revised down from 7.50%). With the revisions this puts momentum at the lowest level since January 2024 and does change the recent narrative somewhat (albeit it also underlines how unreliable ONS labour market has been recently).
• We continue to prefer the HMRC PAYE pay data (although always take the "flash" latest month with a grain of salt). The March flash estimate is 4.63%Y/Y, with February revised up to 5.20%Y/Y from 4.92%Y/Y (the revisions to non-flash months aren't usually as large in this dataset).
• How should the MPC interpret this? In isolation of the rest of the labour market report, less wage pressures do make it a little easier for the MPC to ease policy down the line. But there's probably not enough "signal" in this data to isolate the noise seen recently and to change the narrative substantially.
• It does, however, mean that the signal from the AWE data is now more consistent with that seen in other survey data and in the PAYE data, in that wage momentum is notably slowing.