20181204-法国巴黎银行-Riksbank_s_balance_sheet_to__finally__contract__buy_SEK_7页_904kb

G10 FX Strategy Summary: Buy SEK

Core Content

This report presents a trade idea to buy the Swedish Krona (SEK) by positioning for a decline in EURSEK through a 1-year put spread strategy. The trade involves selling EURSEK with strike prices of 10.00 and 9.60, and is based on the expected contraction of the Riksbank's balance sheet in 2019.

Key Messages

• The Riksbank's balance sheet is projected to contract in 2019, contrary to its previous expansion since 2015.
• The balance sheet is expected to fall by approximately 15% (SEK50bn) between February and March 2019.
• This contraction is expected to lead to a reversal in the trend of foreign investor liquidation of Swedish government bonds, which could strengthen the SEK over time.
• The Riksbank's rate decisions are in line with the consensus, and the bullish view on SEK is primarily based on the balance sheet contraction rather than aggressive rate hikes.
• The volatility of SEK in December makes the use of put spreads a more suitable strategy to limit exposure to intra-day price swings.

Main Points

Riksbank's QE Program

• The Riksbank has been engaged in quantitative easing (QE) since 2015.
• Its balance sheet has grown from less than SEK10bn in 2015 to almost SEK350bn currently.
• The Riksbank has executed a larger QE program than the ECB, Fed, BoE, and is second only to the BoJ in terms of bond holdings.

Portfolio Rebalancing Effects

• Foreign investor holdings of Swedish government bonds have fallen significantly from SEK500bn in 2015 to SEK200bn in Q3 2018.
• This portfolio rebalancing has been bearish for SEK, as foreign investors have been selling bonds and the Riksbank has been buying them.

Balance Sheet Contraction

• The Riksbank is expected to contract its balance sheet in Q1 2019, as it will no longer reinvest bonds maturing in H1 2019.
• The contraction is not expected to be gradual, and the impact on SEK could be sustained and significant.

Trade Idea: Put Spread

• A 1-year put spread with strikes at 10.00 and 9.60 is recommended.
• The trade has an initial delta of -17%, indicating a moderate bearish position.
• The strategy is used to capitalize on the potential decline in EURSEK while limiting downside risk.

Market Positioning

• FX investor positioning in SEK is light, suggesting underweight exposure to the currency.
• The strategy is designed to take advantage of the anticipated strengthening of SEK due to the balance sheet contraction and potential reversal in foreign investor behavior.

Key Information

• Spot rate: 10.23
• Cost of trade: EUR 1.06%
• Timeframe: 1-year
• Expected move: Lower to 9.60
• Strategy: 1y put spread
• Rationale: Based on the Riksbank's balance sheet contraction and its historical impact on the SEK.

Disclosures

• This document is non-independent research for the purpose of MiFID II.
• It is a marketing communication and not investment research.
• It may contain Research as defined under MiFID II unbundling rules, which is only available to certain firms.
• BNPP may have conflicts of interest due to its role as a market maker, advisor, or underwriter.
• The information is for informational purposes only and not investment advice.
• No guarantees are made regarding the accuracy, completeness, or reliability of the information.
• Past performance is not indicative of future results.
• Simulated performance may not reflect real market conditions, including liquidity and transaction costs.

Legal and Regulatory Information

• The document is produced by BNP Paribas group companies and is intended for specific recipients.
• It is subject to legal restrictions and confidentiality.
• Transactions based on this document are only available to Relevant Persons.
• The document is not a prospectus and does not constitute an offer to sell or purchase any financial instruments.
• Options and ETFs discussed in the document are complex instruments with high risk.
• U.S. investors must use BNPP Securities Corp. for transactions.
• EU and other jurisdictions have specific authorizations and supervisions for BNPP's activities.

Conclusion

The report highlights the potential for SEK to strengthen due to the Riksbank's balance sheet contraction and reversal in foreign bond liquidation. It recommends a put spread strategy to profit from a decline in EURSEK, while limiting exposure to volatility. The strategy is based on market dynamics rather than rate hikes, and the document contains important legal and disclosure information for all jurisdictions.