RIKSBANK: Markets Awaiting Operational Changes; Key To Funding Market Vol
Markets are still on the lookout for any updates to the Riksbank’s operational framework following a speech by Governor Thedéen in September. The Riksbank wants to promote more activity in the interbank market, and is considering whether to widen the interest rate corridor between its deposit and lending rates (currently +/- 10bps versus the policy rate) and/or reduce the rate for use of its supplementary liquidity facility (SLF, currently 75bps above the policy rate).
- Although that speech suggested an announcement could come before year-end (e.g. at the December decision), Governor Thedeen’s recent interview with the MNI Policy Team suggested the Riksbank are not bound by this timeline: "We don't have a fixed timetable. We're heavily involved now in internal research ...[and] also interacting with market participants.”
- The Riksbank is cognizant that its decisions could increase volatility in funding markets. If the interest rate corridor is widened, this would increase the attractiveness of Riksbank Certificates relative to the deposit facility. If more excess liquidity is then tied up in Riksbank Certificates, and banks are hesitant to tap Riksbank facilities or the interbank market for liquidity, this could increase pressure and volatility in funding markets.
- Danske Bank have noted that “A wider corridor would likely further incentivise interbank activity when done in combination with a cut in certificate volumes”.
- Excess liquidity is currently just above SEK560bln, down from SEK610bln at the end of September and SEK970bln at the start of this year.
- After trending higher through the first 9 months of 2025, the 3m Stibor/OIS spread has moderated a little the past 8 weeks. The 5-day average of the spread is currently at ~16bps. It remains broadly at a level one would expect given the current amount of excess liquidity in the system.
- Notably, the introduction of the SEK40bln reserve requirement in October has not have much impact on the Stibor/OIS spread. We assume that’s because the requirement has been absorbed by lower Certificate take-up, instead of a drain of deposit facility funds.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
