Scandi rates outlook

Danske Bank notes in a report on Monday:

• We expect Danmarks Nationalbank to leave interest rates unchanged over 12M. We expect some of the recent underperformance in Danish fixed income markets to reverse and the spreads to narrow somewhat versus the EUR. Despite the possibility of another small rate cut in Sweden, it is clear that for many real-money investors bonds with negative yields are not a viable long-term investment. Recently, 10Y bonds have underperformed significantly against Bunds. Given that the risk of increased central bank bond purchases cannot be disregarded, we believe there is room for the Swedish long end to perform further. 
  
  
• In Norway, the market is pricing in two additional cuts in 2015. We believe this aggressive pricing will continue for the next six months but eventually we believe we will see a correction if rates are cut only once as we expect. Ten-year swaps have tightened versus EUR swaps over the past six months, though we have seen some reversal of this trend recently. We believe this tightening will continue on a three- to six-month horizon and then reverse again.