RIKSBANK: Nominal SGB QT Concluding Soon; Plenty of SGBs To Absorb Next Year
The Riksbank will hold two nominal bond auctions in December for a total of SEK3.7bln (SEK3bln on Dec 5 and SEK0.7bln on Dec 12). Following these sales, Riksbank holdings of nominal SGBs will reach the SEK20bln long-term target, and active sales will conclude. Holdings of nominal SGBs will be permitted to fluctuate between SEK18-22bln for short periods of time going forwards.
- The conclusion of nominal bond QT comes at an opportune time for SGB markets, which will have to absorb a significant increase in supply from the National Debt Office (NDO) next year.
- The NDO will sell SEK216bln of nominal bonds in 2026, with auction sizes to be increased to SEK8bln from SEK6bln.
- SGBs cheapened notably against German peers and swaps following last week's NDO borrowing report, with weakness centred at the 10-year tenor (as the bulk of upcoming issuance will at that part of the curve).
- The 10-year SEK swap spread is currently at ~8bps, down from almost 15bps before the NDO report. However, the spread remains above the 0bps seen in September.
- The 10-year SGB/Bund spread is currently at its widest since April 2024. The reaction to Germany’s 2026 issuance plan (usually released in mid-December) presents the main risk event for the spread in the coming weeks.
- The Riksbank’s latest Financial Market Survey wrote that: “In the market for nominal government bonds, significantly more participants respond that they have no opinion on market liquidity in the secondary market. Slightly fewer people think that liquidity is good or very good and one in ten consider market liquidity to be poor, in line with autumn 2024 levels……sales from the Riksbank have been positive for the market but, together with the volume from the Swedish National Debt Office, the market has had difficulty finding a new equilibrium level.”
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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.
