1
Bridging Swedish and EMU/French Bridging Swedish and EMU/French inflationinflation
Vincent Chaigneau
SG - Head of Interest Rate & FX Strategy
Swedish and French CPIsSwedish and French CPIs
-800
-600
-400
-200
0
200
400
600
800
1000
-4
-20
24
68
1012
1416
18
Spread SD CPI FR CPI
bp y/y,%
Correlation between the French ex-tobacco CPI and the Swedish CPI: 0.72
Correlation between the French and Swedish CPIs: 0.83
Period: 01/91 – 12/06 Period: 01/76 – 01/07
-400
-200
0
200
400
600
800
1000
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
-2
0
2
4
6
8
10
12
14
Spread SD CPI FR CPI ex tobacco
bp y/y,%
The influence of housingThe influence of housing
Impact of each category on the spread Weight of each CPI category
Category SD CPI FR CPI SpreadFood 13.10% 15.03% -19.3Alcohol 3.90% 3.33% 5.7Clothing 5.80% 5.19% 6.1Housing 27.40% 13.67% 137.3Furnishing 5.70% 6.02% -3.2Health 2.90% 9.97% -70.7Transport 13.90% 16.51% -26.1Communication 3.50% 2.95% 5.5Recreation 12.40% 9.11% 32.9
Education 0.40% 0.24% 1.6Restauration 5.60% 6.62% -10.2Other 5.40% 1.14% -59.6
Category ValueFood 11.84%
Alcohol 6.33%Clothing 4.98%Housing 35.59%Furnish 1.95%Health 12.59%Transport 9.81%Communication 4.25%Recreation 4.35%Restaurant 4.00%Other 4.32%
……that implies a strong correlation between the spread that implies a strong correlation between the spread and 3-month yieldsand 3-month yields
Correlation between the Swedish/French ex-tobacco CPI spread and Swedish 3-month yields: 0.63
-400
-200
0
200
400
600
800
1000
0
2
4
6
8
10
12
14
16
18
20
Spread 3 mth yields
Swedish and EMU CPIsSwedish and EMU CPIs
Correlation between the EMU ex-tobacco HICP and the Swedish CPI: 0.64
-300
-250
-200
-150
-100
-50
0
50
100
150
Janu
ary-97
Janu
ary-98
Janu
ary-99
Janu
ary-00
Janu
ary-01
Janu
ary-02
Janu
ary-03
Janu
ary-04
Janu
ary-05
Janu
ary-06
Janu
ary-07
-1.5-1-0.500.511.522.533.54
Spread Total SD CPI EA CPI hors Tabac
bp y/y,%
Correlation between the EMU HICP and the Swedish CPI: 0.84
-400
-200
0
200
400
600
800
1000
Apr-8
9
Apr-9
0
Apr-9
1
Apr-9
2
Apr-9
3
Apr-9
4
Apr-9
5
Apr-9
6
Apr-9
7
Apr-9
8
Apr-9
9
Apr-0
0
Apr-0
1
Apr-0
2
Apr-0
3
Apr-0
4
Apr-0
5
Apr-0
6
-2
0
2
4
6
8
10
12
14
Spread Total SD CPI EA CPI
bp y/y,%
Period: 01/97 – 01/07 Period: 04/89 – 01/07
Inflation linked OATs attractive for buy-and-hold Inflation linked OATs attractive for buy-and-hold investors Swedish investorsinvestors Swedish investors
The outstandings of Swedish inflation linked bonds have been increasing too
Investors holding Swedish linkers for long term hedging purposes for example may look for instruments which exhibit the same trend in total return terms
Inflation linked OATs can be attractive from this point of view, given their high correlation with Swedish linkers (next slides).
0
50
100
150
200
250
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Outstandings of inflation linked loans, SEK billion
Source: Swedish National Debt Office website
Total return: OATi 2013 vs. SGBi 2015Total return: OATi 2013 vs. SGBi 2015
95
100
105
110
115
120
125
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07
OATi 13 (hedged) SGBi 2015
Unhedged return, monthly Currency-hedged return, monthly
95
100
105
110
115
120
125
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07
OATi 13 (unhedged) SGBi 2015
Correlation = 0.96 (since March 2003) Correlation = 0.97 (since March 2003)
95
110
125
140
155
170
185
Feb-02 May-03 Aug-04 Nov-05 Feb-07
OATi 29 (unhedged) SGBi 28
95
110
125
140
155
170
185
Feb-02 May-03 Aug-04 Nov-05 Feb-07
OATi 29 (hedged) SGBi 28
Total return: OATi 2029 vs. SGBi 2028Total return: OATi 2029 vs. SGBi 2028
Unhedged return, monthly Currency-hedged return, monthly
Correlation = 0.99 (since March 2003) Correlation = 0.99 (since March 2003)
Total return: OATei 2032 vs. SGBi 2028Total return: OATei 2032 vs. SGBi 2028
100
110
120
130
140
150
160
170
Nov-02 Dec-03 Jan-05 Feb-06 Mar-07
SGBi 28 OATei 32 (unhedged)
Unhedged return, monthly Currency-hedged return, monthly
Correlation = 0.98 (since November 2002) Correlation = 0.99 (since November 2002)
100
110
120
130
140
150
160
170
Nov-02 Dec-03 Jan-05 Feb-06 Mar-07
SGBi 28 OATei 32 (hedged)
OATei vs. SGBi real-yield dynamicsOATei vs. SGBi real-yield dynamics
Real yields moving hand in hand
1.3
1.8
2.3
2.8
3.3
3.8
Oct-02 Aug-03 Jun-04 Apr-05 Feb-06 Dec-06SGBi 28 OATei 32
%
Comparison in breakeven spaceComparison in breakeven space
145
162
179
196
213
230
Feb-05 Aug-05 Feb-06 Aug-06 Feb-07
BEIR SGBi 2015 BEIR OATei 2015
bp
Trends in breakeven space are not similar => opportunities for relative value strategies
145
162
179
196
213
230
Feb-05 Aug-05 Feb-06 Aug-06 Feb-07
BEIR SGBi 2015 BEIR OATi 2013
bp
12
Innovation in Government Securities Market: Innovation in Government Securities Market: Inflation LinkedInflation Linked
Ultra Long Dated BondsUltra Long Dated BondsIndicesIndices
Innovation in Government Securities Market: Innovation in Government Securities Market: Inflation LinkedInflation Linked
Ultra Long Dated BondsUltra Long Dated BondsIndicesIndices
Sébastien BOITREAUD, Sébastien BOITREAUD, Deputy Chief Executive,Deputy Chief Executive, AgenceFrance TrésorAgenceFrance Trésor
Bo LUNDGREN, Bo LUNDGREN, Director General,Director General, Riksgäldskontoret Riksgäldskontoret
Vincent CHAIGNEAU, Vincent CHAIGNEAU, Head of Strategy Research, Head of Strategy Research, Société Générale CIB Société Générale CIB
Philippe RAKOTOVAO, Philippe RAKOTOVAO, Chief Executive Officer,Chief Executive Officer, EuroMTS EuroMTS
Stéphane SALAS, Stéphane SALAS, Head of Inflation Trading,Head of Inflation Trading, SociétéGénérale CIBSociétéGénérale CIB
14:00/15:30 - Panel 4
13
Stockholm, Thursday, March 29, 2007Stockholm, Thursday, March 29, 2007
Paris, GatewayParis, Gatewayto Euro Capital Marketsto Euro Capital Markets