Investment Research

23 April 2018

Reading the Markets Norway

Steeper Norwegian swap curve on higher wage growth

 Macro: Norges Bank is set to keep the tightening bias. Recent weakness in data Seventh issue 2018
could be contradicted over the next two weeks.
 Reading the Markets Norway
 Fixed income: Steeper NOK IRS curve relative to the Swedish equivalent.. targets our institutional fixed
income and FX clients.
 Commodities: Oil price on the increase.
 It is produced biweekly.
 FX NOK: Not yet time to add new long.  Strategy performance will be
New trades: Pay NOK IRS 2Y/8Y and SEK IRS 2Y/3Y and receive NOK IRS updated in Reading the Markets
Norway ahead but strategies may
2Y/3Y and SEK IRS 2Y/8Y.
be opened and closed in between
Closed trades: Take profit (16 April) on long NOK/SEK (PnL: +7.6%). reports.

Table 1. Danske Bank’s market view in a nutshell

Relative value Last update

Not yet time to buy NOK
FX 23.04.2018
Steeper curve on wage inflation
Curve view (NGB) 23.04.2018
ASW-swap widening gradually moving towards the long-end
Swap spreads (ASW) 12.03.2018
Wider swap spreads vs international peers on wage
Spread vs peers inflation 23.04.2018
Moderately lower Nibor-sight deposit spread during Q2
Short-end [<2y] 09.04.2018
Norges Bank's policy rate 3m 6m 12m
0.50 % 0.75 % 1.00 %
Source: Danske Bank

Chart 1. The Phillips-curve is alive and kicking

Chief Economist
Frank Jullum
+47 45 25 85 29
fju@danskebank.no

Senior Analyst
Kristoffer Kjær Lomholt
+45 45 25 85 29
klom@danskebank.dk

Senior Analyst
Jens Nærvig Pedersen
+45 45 12 80 61
jenpe@danskebank.dk

Head of Fixed Income Research

Arne Anders Lohmann Rasmussen
+45 45 12 85 32
arr@danskebank.dk

Chief Strategist
Jostein Tvedt
Source: Danske Bank +47 23 13 91 84
jtv@danskebank.com

Important disclosures and certifications are contained from page 9 of this report. www.danskeresearch.com
Reading the Markets Norway

Wage talks confirm our expectations Chart 2. Domestic inflation about to

bottom
We would like to draw attention to the outcome of the private sector wage talks. The
settlements imply central pay supplements of 0.5-0.6%, which, together with an overhang of
1.2%, gave a total frame of ‘around 2.8%’. Hence, the social partners expect wage drift in 2018
of 1.0-1.1%, which is around or slightly below 2017’s level. Given that the labour market is
growing much tighter and profitability in the business sector is improving, we believe wage
drift will be a little higher than this and we still expect wage growth of 3.0% in 2018. As can
be seen from Chart 1, the result fits well with the historical Phillips curve. So, in our view, the
most important driver of inflation in the medium term is clearly upward bound.
Source: Macrobond Financial, Danske Bank

Norges Bank ‘won’t back down’

We expect no new signals from Norges Bank at its monetary policy meeting on 3 May. At
Chart 3. ‘Core-core’ inflation moving
the meeting in March, Norges Bank signalled that it would raise interest rates ‘over the slowly upwards
summer’. Since then, key figures have been a bit disappointing. In particular, core inflation
was 1.2% y/y in March, well below the expected 1.5%. However, two notoriously volatile
components – airfares and food prices – surprised on the downside in the run-up to Easter.
Adjusted for this, ‘core-core’ inflation actually rose year on year from 1.4% to 1.5%. The
point of this adjustment is to pinpoint the underlying trend in inflation and we see no signs
of any disinflationary forces at play.

In addition, retail sales have disappointed lately. Based on the continued improvement in the
labour market, higher real wage growth and the turnaround in the housing market, this is a bit Source: Macrobond Financial, Danske Bank

of a surprise, especially as confidence is still rising. As the monthly figures can be volatile,
we suspect some of the weakness to be noise and estimate retail sales increased 0.9% m/m in
Chart 4. Tightening of labour market to
March. Admittedly, this would still imply a weak quarter for private consumption and some continue
of the downside risks of private consumption visible recently should diminish.

We like to cross-check our forecasts against the development in the labour market, to
capture the overall picture as accurately as possible. After falling by 1,000-1,500 people
month on month, gross unemployment fell by less than 300 in March. This may signal that
the tightness in the labour market is decreasing but it is likely the timing of registration in
March, which was a week earlier than usual due to Easter, has influenced the numbers.
Therefore, we think gross unemployment fell by 1,000 m/m in April, pointing to a
continued tightening of the labour market, indicating continued above-trend growth. Source: Macrobond Financial, Danske Bank

If our expectations for the key figures next week are right, Norges Bank would be able to
conclude that ‘domestic growth has been more or less in line with expectations’. In
addition, due to our ‘core-core’ calculation, we expect Norges Bank to play down the
importance of the lower-than-expected inflation print.

In addition, the exchange rate is more or less in line with expectations in March and wage
negotiations ended more or less as expected. The money-market premium is considerably
higher than expected but the Loan Survey revealed marginally lower mortgages.

The oil price is currently close to USD10/bl higher than expected in March and despite some
convergence further out we now expect the oil price in two to three years to be USD3-5/bl
higher than in March. The housing market recovery seems even more pronounced than just a
month ago, with prices continuing to increase and oversupply set to diminish gradually. House
prices in Oslo were up 3.5 % in Q1, starting to signal a move from downside to upside risks.

Overall, we expect Norges Bank to stand its ground and still signal a rate hike ‘after the
summer’, especially as this is ‘a small meeting’, with no monetary policy report or press
conference.

2 | 23 April 2018 www.danskeresearch.com

Reading the Markets Norway

Norwegian swap curve flat vs Sweden Chart 5. NOK Barbell 2Y-5Y-10Y at

attractive levels
despite inflationary impulses 0.4

0.3
Expect steeper NOK IRS curve relative to SEK 0.2

The Norwegian swap curve remains excessively flat. The flatness is partly a reflection of 0.1

spillovers from international peers and partly linked to domestic factors including a more 0.0

-0.1
hawkish Norges Bank, the lowering of the inflation target and surprisingly low core inflation Barbell NOK IRS 2Y-5Y-10Y
-0.2
in March. The flatness of the long-end of the Norwegian curve appears exaggerated relative to
-0.3
the corresponding Swedish curve, especially in light of the relative economic outlook of these Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18

economies. Source: Danske Bank

Therefore, we suggest a NOK versus SEK IRS box in order to be positioned for a relative
steepening of the Norwegian curve. We suggest paying NOK IRS 2Y/8Y and SEK IRS Chart 6. Spread 10Y IRS NOK vs EUR
2Y/3Y and receiving NOK IRS 2Y/3Y and SEK IRS 2Y/8Y. The current level of this box and USD
is -34bp. We suggest a P/L of -15/-45. Roll 3M -1.3bp. See Chart 7. 1.4 0.2
0.1
1.3
0
As we discuss above, the Norwegian labour market’s Philips curve appears to be alive and 1.2
-0.1
1.1 -0.2
kicking. The current low unemployment seems set to push wage growth up to around 3% 1 -0.3

in 2018, i.e. well above international peers. The current low long-end interest rates do not 0.9
-0.4
-0.5
Spread 10Y IRS NOK vs EUR
0.8
appear to discount higher Norwegian wage growth ahead. Spread 10Y IRS NOK vs USD (rhs)
-0.6

0.7 -0.7
12-Jan-16 12-Jan-17 12-Jan-18

Chart 7. Unusually flat Norwegian swap curve relative to Sweden, NOK IRS 2Y/10Y Source: Macrobond Financial
– NOK IRS 2Y/3Yvs SEK equivalent

0.4 Chart 8. More hawkish Norges Bank

0.3 Steepness NOK IRS (2Y3Y vs 2Y8Y) vs SEK
but market rates are below its MPR
0.2 1/18 projections from 2019 onwards
– due partly to low March core inflation
0.1
0.0 1.90
Historical 3m nibor

-0.1 1.70
Current market, 3m fwd-
nibor
-0.2 1.50
NB's 3m nibor MPR4/17

-0.3 1.30
NB's 3m nibor MPR1/18

-0.4 1.10

-0.5 0.90

-0.6 0.70
Dec 13 Jun 15 Dec 16 Jun 18 Dec 19
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18
Source: Macrobond Financial, Danske Bank
Source: Danske Bank

NOK IRS 2Y-5Y-10Y butterfly at attractive levels Chart 9. Upward trend in 3M Nibor
seems to have come to a halt, expect
The NOK IRS 2Y-5Y-10Y butterfly (i.e. long the mid segment versus the wings, here lower Nibor towards the June fixings
defined as NOK IRS 2Y-2X5Y+10Y) is close to historical low levels. However, the level -0.7 1.4
is at present slightly higher than at end-March. High interest rates in the mid-segment Spread USD3m FRA-OIS
-0.6 1.3
3m Nibor (rhs)
versus the wings reflects a combination of domestic and international factors. -0.5 1.2

-0.4 1.1
Initially, the 2 March change in the inflation target from 2.5% to 2.0% did not affect market
-0.3 1
rates to any significant degree. However, the new target may have made it easier for the
-0.2 0.9
Norwegian market to follow the recent international downward trend in yields.
-0.1 0.8
Nevertheless, the current long-end is low even in light of the new target. Given long-run
0 0.7
inflation at 2.0%, there is hardly any real return in the NOK IRS 10Y – currently at 2.25%. 02 16 02 17 02 18

Source: Macrobond Financial

Generally, international NOK-denominated issuances tend to flatten the Norwegian curve.
In March, these flows seem to have contributed to push long-end interest rates downwards
but the current market appears neutral.

3 | 23 April 2018 www.danskeresearch.com

Reading the Markets Norway

Aggressive central banks – in particular the Fed – and a more hawkish Norges Bank have Chart 7. 10Y NGB spread vs Germany
contributed to pushing the mid segment upwards. However, the mid segment has come
1.45
down somewhat over the past few weeks on international factors and surprisingly low 1.4
March core inflation. A somewhat higher core CPI for April, released 9 May, may push 1.35
1.3
Norwegian mid-segment interest rates upwards and hurt a butterfly strategy somewhat.
1.25

The Norwegian FRA curve has flattened after the release of the Monetary Policy Report 1/18 1.2
1.15
on 15 March. Immediately after the release of Norges Bank’s more hawkish interest rate 1.1
Spread NO DE 10Y(RHS)
projection, market rates were close to Norge Bank’s path. For 2019 and 2020, market rates are 1.05
1
now significantly lower than Norges Bank’s projection. This partly reflects the low March core 29.08.2017 29.10.2017 29.12.2017 28.02.2018

CPI (see Chart 8). We expect market interest rates soon to return to Norges Bank’s projection. Source: Danske Bank

Despite the attractiveness of the levels, we do not add the ‘butterfly’ to our portfolio just
now. The strategy is too similar to already-open strategies and the pricing at present is
Chart 8. NOK FRA ‘barbell’ in
potentially affected by the government bond syndication last week. accordance with a September hike and
normalisation of Nibor spread
Norges Bank syndication of a new 10Y benchmark bond 10

On Thursday 19 April, the book was closed for the long-awaited syndication of the new 8

Norwegian 10Y benchmark government bond NST480 on 26 April 2028. Total volume was 6

set at NOK12bn. The total book was approximately twice that size. The price was set at 15:21 4

CEST on 19 April at a yield of 2.011%, given by an ASW spread (mid-market) of -27bp 2

Short-end NOK FRA "barbell"
(price 99.901). Swap rates have been rising slightly ahead of the syndication, which implies 0
Mar-18 Mar-18 Apr-18 Apr-18 Apr-18
that relative to international peers the bond appears marginally cheap (see Chart 10).
Source: Danske Bank
Strategy review
Ahead of the 15 March Norges Bank Monetary Policy Meeting, we suggested selling NOK
Chart 9. Earlier gain on outright NOK
FRA 3M JUN18 and DEC18 and buying NOK FRA 3M SEP18 (X2) on a greater probability IRS 2Y/1Y strategy lost – should
of a sight deposit rate hike in September and a normalisation of the Nibor-sight deposit spread. perform on core CPI reversion
We opened this FRA ‘barbell’ strategy at 7.5bp. Just after the 15 March policy meeting, it fell 3.6 Spread NOK IRS 2y/1y - SEK IRS 2y/1y
NOK IRS 2y/1y
to 2bp but, in the wake of the substantial Nibor rise, the strategy performed poorly. 3.1
2.6

Cash liquidity is tight at present. As we get close to the summer, the cash liquidity should 2.1
1.6
improve somewhat. However, the current high Nibor level is due mainly to spillover via FX 1.1
FWD, from the elevated US FRA-OIS spread (see Chart 9). Forecasting Nibor and the effects 0.6
0.1
of the short-end FRAs are challenging in the current environment. However, improved Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18

domestic cash liquidity and a slight reversion of the US FRA-OIS spread as the market adjusts Source: Danske Bank
to the US interbank shocks in Q1, suggesting a downward trend in 3M Nibor towards June.
Disregarding the low March core CPI, which we believe represents temporary effects and
noise, the case for a September hike is strong. At present, the FRA ‘barbell’ is at 3.5bp. We Chart 10. Unusually flat long-end NOK
IRS curve
keep the strategy open and reiterate our profit target of -10bp (see Chart 11).
1.3 Spread NOK IRS 10Y - NOK IRS 6Y
Spread NOK IRS 6y/4y - NOK IRS 2y/4y
Our strategy of an outright higher NOK IRS 2Y/1Y performed well ahead of, and after, the 1.1

15 March Monetary Policy Meeting. However, we did not take profit on the strategy in 0.9

0.7
time and the recent downward trend in interest rates and the low March core CPI have
0.5
wiped out much of the profit. We opened the strategy at 1.915% in Reading the Markets
0.3
Norway – Upside risk to Norwegian wage growth – the market may discount faster 0.1
Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17
normalisation of interest rates, 19 February. The current level is 1.97%, i.e. a modest gain
Source: Danske Bank
of 5.5bp. We suggest keeping the strategy open until after the April CPI numbers on 9 May.
We expect an increase in core CPI from 1.2% in March to 1.4% in April (see Chart 12).
The strategy of a steeper long-end Norwegian interest rate curve continues to underperform.
The flattening of the US curve, combined with the lowering of the inflation target, has
worked against our strategy of paying NOK IRS 6Y/4Y and receiving NOK IRS 2Y/4Y.
We opened the strategy at a spread of 48bp. The current level is 42, i.e. a loss of 6bp. We
still think the flatness is exaggerated and keep the strategy open (see Chart 13).

4 | 23 April 2018 www.danskeresearch.com

Reading the Markets Norway

Oil price on the increase

Oil prices have risen to the highest level since 2015. Fundamentally, a tighter oil
market balance and weaker USD have supported the higher oil prices. We now
forecast the price of Brent crude will average USD70/bl this year and USD73/bl next
year. In the short term, the possibility of new sanctions on Iran creates upside risk to
our forecast.

Tighter market balance

The world oil market has started to attract attention with the price of Brent rallying well
past the USD70/bl mark to the highest level since 2015. The world oil market balance has
started to tighten. We stress that the demand outlook is still positive supported by steady
global economic growth and a weaker USD compared with 2017. On the supply side, we
think estimates of production increases in the US are too optimistic. In our view, OPEC is
set to maintain production cuts for the rest of 2018 and is likely to maintain some sort of
quota system after 2018, which leaves some room for production increases. Venezuela
deserves particular attention currently. Its output has trended down over the past year, as
the country has trouble financing maintenance and new investments to maintain oil
production. Even if the economic situation stabilises, it would take a long time for
Venezuela to return production back to old highs. If anything, there is a risk of further
production losses.

Keep an eye out for Iran upside risk

There are two dates to keep an eye on over the coming month. (1) On 12 May the EU has
to decide on whether to support new sanctions on Iran. It remains unclear to what extent
new sanctions will affect Iran’s exports but the risk is clearly there, creating upside risk to
our forecasts. Keep in mind that the oil price fell around USD7/bl in 2015 when sanctions
on Iran’s oil exports were removed. Reinstating sanctions should have the opposite effect.
(2) On 22 June, OPEC is set to meet to review production cuts. The meeting looks set to
take place on the back of an oil price above USD70/bl, which may encourage OPEC to
allow more oil to come to the market after 2018. This creates a downside risk to prices if
OPEC sets the ceiling too high or scale back production cuts early.

We have revised up our oil price forecasts

We have revised up our forecasts for oil prices. We now forecast the price on Brent at
USD72/bl in Q4 18 and an average USD70/bl in 2018 and USD73/bl in 2019. We see
asymmetric risks to our forecasts from the risk of a negative supply shock, e.g. if the US
reinstates nuclear-related sanctions on Iran and the risk of a positive supply shock if OPEC
and non-OPEC raise the output ceiling too much next year after 2018.

Chart 11. Oil price rally has steepened Chart 12. Iran oil output at risk from
contango in forward market new sanctions

Source: Macrobond Financial and Bloomberg Source: Macrobond Financial and Bloomberg

5 | 23 April 2018 www.danskeresearch.com

Reading the Markets Norway

NOK – not yet time to add new long Chart 13: NOK remains undervalued…

Strategically, we still see a case for the NOK to move higher over the coming year.
Meanwhile, recently the strategic case has been slightly weakened, which together with
a trickier tactical outlook leaves us on the sidelines in NOK for now. We have booked a
7.6% profit on our long NOK/SEK position. Our fundamental predisposition remains
to sell EUR/NOK on spikes towards the higher end of the 9.47-9.75 range.

Strategic case for stronger NOK still in place… Source: Macrobond Financial, Danske Bank

Following the Q4 17 NOK weakness that we called for, we argued that a strategic appealing
case of positioning for a stronger NOK in the beginning of 2018 was building. This case Chart 14: …and positive terms-of-trade
was based not least on five arguments: (1) broader based growth and valuation, shock not yet reflected in NOK…
(2) speculative positioning and housing market differences to Sweden, (3) positive terms
of trade shock not yet reflected in the NOK, (4) relative rates on Norges Bank initiating a
hiking cycle and higher Nibor fixings and (5) global growth and commodity FX support.

Strategically, we still think there is a fundamental case for the NOK strengthening over the
coming year. Indeed, the NOK still seems fundamentally undervalued and the Regional
Network Survey indicated accelerating growth prospects for coming quarters. Higher and Source: Macrobond Financial, Danske Bank
broader based growth should allow the NOK to erase some of the fundamentally required
losses since 2013. Also, the impact of significantly improved terms of trade stemming from
Chart 15. …but positioning has become
higher oil prices is not yet reflected in the trade-weighted NOK, even if we know the NOK a headwind which alongside…
reacts less to geopolitical/supply story volatility in oil, cf. section above. Finally, Norges
Bank initiating its hiking cycle in September should contribute to a stronger NOK.

…but near-term headwinds leave us side-lined for now

Meanwhile, the strategic case of a stronger NOK has been weakening slightly recently. First,
the latest set of domestic data releases has been disappointing and with global growth levelling
off, we no longer see the same upside risks to our mainland growth forecast as before. While
Norges Bank is still set to hike rates in September, the probability/risk of a June hike has fallen Source: Macrobond Financial, Danske Bank

significantly, which lowers the attractiveness of a long NOK position at this stage. From a more
tactical perspective, positioning is also becoming a headwind, as investors have heavily bought Chart 16. …elevated Nibor fixings,
softer domestic data, global growth
NOK over the past month, realising the key fundamental differences between the central bank,
levelling off and…
growth and housing market outlook between Norway and Sweden. Given the lack of additional
catalysts, this leaves the NOK vulnerable to profit taking in our view. Finally, we are now
heading into the height of the NOK dividend season, which on balance involves net NOK
selling. Admittedly, if we adjust the payouts for ownership and assume no reinvestments, the
amounts are modest in size. Still, the dividend season could counter NOK FX interest
stemming from the new NGB and is, therefore, an argument against buying NOK at this stage.

Following the March Norges Bank meeting, we took profit on our short EUR/NOK trade. Last
Monday, we took profit on our NOK/SEK positon. Our fundamental predisposition remains to
resell EUR/NOK. However, in the near term, we think the cross should be considered as a Source: Macrobond Financial, Danske Bank

9.47-9.75 range play and we do not like the risk-reward of selling the cross from current spot
levels. In the absence of any unforeseen event, we look to sell at the top of the range. Chart 17. …Norway dividend season
leaves us side-lined for now
NOK strategy: stay short EUR/NOK, long NOK/SEK NOK bn Norwegian dividend payout overview,
2 Adjusting for ownership, assuming no reinvestments

EUR/NOK forecast: 9.60 (1M), 9.40 (3M), 9.20 (6M) and 9.10 (12M) 1
0
-1
Leveraged funds. Look to re-sell EUR/NOK spikes towards high end of the 9.47-9.75 range. -2
-3 NOK selling

Bond investors should seek to lower hedge ratios on NOK exposure. -4

-5
01/04
04/04
07/04
10/04
13/04
16/04
19/04
22/04
25/04
28/04
01/05
04/05
07/05
10/05
13/05
16/05
19/05
22/05
25/05
28/05
31/05
03/06
06/06
09/06
12/06

Real-money funds. We recommend rolling EUR hedges short (3M) while extending USD
hedges further out on the curve (1Y). Source: Macrobond Financial, Danske Bank

6 | 23 April 2018 www.danskeresearch.com

Reading the Markets Norway

Table 18. Open strategies and trades with recent status change

Type Trade Idea Target & P/L Status

Money Market Pay NOK IRS 2Y/8y and SEK IRS Opened 23-Apr-2018 New
2Y/3Y and receive NOK IRS 2Y/3Y
Start -34
and SEK IRS 2Y/8Y
Target/stop -15/-45
Now -34
P/L 0
FX Sell EUR/NOK spot outright. Downside potential on relative Opened 5-Mar-2018 Take
growth, valuation, positioning, relative profit
Start 9.6541
rates and global outlook 16 Mar
Target/stop 9.25/9.84
Now 9.495
P/L 1.69 %
Money Market Sell NOK FRA 3m JUN18 and Increased probability of September Opened 12-Mar-2018 Hold
DEC18 and buy NOK FRA 3m hike relative to December and
Start 7.5
SEP18 normalisation of cash liquidity
Target/stop -10/15
Now 3.5
P/L 4
Fixed Income Pay NOK IRS 2Y/1Y outright (as Higher short-end interest rates on Opened 19-Feb-2018 Hold
alternative to existing relative increased risk of wage inflation
Start 191.5
strategies)
Target/stop 225/175
Now 197
P/L 5.5
Money Market Pay NOK IRS 6Y/4Y and receive Excessively flatness will be reverted Opened 5-Feb-2018 Hold
NOK IRS 2Y/4Y as mid segment normalises vs the Start 48
long-end
Target/stop 70/35
Now 42
P/L -6
Fixed Income Reduced asset swap spread NST Wider short-end ASW spread on Opened 5-Feb-2018 Take
473 potential for a NOK rally Start -54 profit
(target
Target/stop -65/-45
hit)
Now -60
P/L 6
Money Market Pay NOK IRS 2Y/2Y and receive Norwegian and euro-area economic Opened 22-Jan-2018 Hold
USD IRS 2Y/2Y recovery may suggest that the spread
Start -87
will tighten long-term
Target/stop -40/-110
Now -103
P/L -16
Money Market NOK IRS 2Y-5Y+10Y 'Butterfly' Stronger NOK may reduce medium Opened 8-Jan-2018 Stop
term inflation expectations loss 29
Start 0
Jan
Target/stop 20/-10
Now -10
P/L -10
Money Market Sell SEK FRA 3m MAR 2019 and Receive SEKFRAMAR19 and pay Opened 15-Dec-2017 Target
Buy NOK FRA 3m MAR 2019 NOKFRAMAR19 in a spread on met 20
Start 113
relative monetary policy Feb
Target/stop 127/100
Now 127
P/L 14
FX Sell 3M EUR/NOK 1:1:2 ratioed Position for stronger NOK FX and Opened 5-Dec-2017 Take
9.4500-9.8261-10.1000 seagull utilise rise in implied volatility to Start 9.8261 profit
obtain protection against year-end Target/stop "N/A"
liquidity Now 9.5718
P/L 1.80 %
FX Buy NOK/SEK spot outright Position for stronger NOK, housing Opened 5-Dec-2017 Take
market differences between Norway Start 1.0144 profit
and Sweden and year-end liquidity Target/stop 1.100/0.985 16 April
Now
P/L 7.60 %
Note: Indications generally based on mid-market prices some hours ahead of the publishing of the report
Source: Danske Bank

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Reading the Markets Norway

Table 19. Most recently closed strategies

Fixed income Reduced asset swap spread NST Increased demand in the mid Opened 13-Nov-2017 Take
474 segment for Norwegian government Start -38 profit
bonds on potential new-year NOK Target/stop -55/-30
rally Now -47
P/L 9
Money Market Pay NOK IRS 5y/5y and receive EUR Higher rates on faster economic Opened 12-Sep-2017 Target
IRS 5y/5y recovery and increased inflationary Entry 81 met 29
pressure Target/stop 100/70 Jan
Now 100
P/L 19
Money Market Sell NOK FRA 3m SEP 2018 and Steeper FRA-curve on hawkish Opened 11-Dec-2017 Take
Buy NOK FRA 3m SEP 2019 Norges Bank and growth recovery Start 23.5 profit
case Target/stop 43/13
Now 32.5
P/L 9
Fixed income Reduced asset swap spread NST Wider short-end ASW spread on Opened 27-Nov-2017 Target
473 normalisation of nibor and the Start -49.5 met 22
potential for a NOK rally after New- Target/stop -65/-35 Dec
Year Now -65
P/L 15.5
FX EUR/NOK seagull Tactical bet on higher EUR/NOK Opened 17-Oct-2017 Expired
towards year-end. 3m bulish 1:1:2 Start 9.323
Seagull Target/stop
Now 9.8313
P/L 0.10 %
Fixed income Sell NST479 (17 February 2027) Long end steepening relative to Opened 16-Oct-2017 Take
and buy NST475 (24 May 2023) vs international peers on improved Start -25 profit
German equivalent DBR 10Y (15 growth outlook Target/stop -5/-40
August 2027) and DBR 5y (15 May Now -17
2023) P/L 8
Money Market Buy NOK FRA 3m DEC17 and sell Relative FRA flattening vs Euro: Short Opened 12-Oct-2017 Closed -
NOK FRA 3m DEC18 vs sell EUR term hedge to our long-term positive Start 11 at no
FRA 3m DEC17 and buy EUR FRA growth case due to potential strong Target/stop 0/17.5 cost
3m DEC18 reactions to weak housing data and Now 9.5
low September inflation P/L 1.5
FX Sell 3M NOK/SEK straddle skewed Play modest NOK/SEK rebound and Opened 21-Aug-2017 Take
to upside subsequent range via options Entry 1.02 profit
Target/stop "N.A."
Closed -
P/L 2.40 %
Money Market Receive NOK IRS 1y/1y and pay Short term hedge to our long-term Opened 2-Oct-2017 Closed
EUR IRS 1y/1y positive growth case due to potential Entry 130 13 Oct.
strong reactions to weak housing data Target/stop 100/145
and low September inflation Now 128
P/L 2
Money Market FRA 'fly': Buy NOK FRA 3m DEC17 Norges Bank will reiterate its interest Opened 4-Sep-2017 Take
and NOK FRA 3m DEC19 and sell rate path and the market will move in Start -7 profit
NOK FRA 3m DEC18 the direction of Norges Bank's guiding Target/stop -20/0
Now -12
P/L 5
Note: Indications generally based on mid-market prices some hours ahead of the publishing of the report
Source: Danske Bank

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Disclosures
This research report has been prepared by Danske Bank A/S (‘Danske Bank’). The authors of the research report
are Frank Jullum (Chief Economist), Kristoffer Kjær Lomholt (Senior Analyst), Arne Anders Lohmann Rasmussen
(Head of Fixed Income Research), Jens Nærvig Pedersen (Senior Analyst) and Jostein Tvedt (Chief Strategist).
Analyst certification
Each research analyst responsible for the content of this research report certifies that the views expressed in the
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.
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of relevant assumptions, are stated throughout the text.
Expected updates
Biweekly.
Date of first publication
See the front page of this research report for the date of first publication.

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Disclaimer related to distribution in the United States

This research report was created by Danske Bank A/S and is distributed in the United States by Danske Markets
Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank A/A, pursuant to SEC Rule 15a-6 and related
interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for
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Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument
may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-U.S. financial
instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be registered with the U.S.
Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S.
Securities and Exchange Commission.

Report completed: 20 April 2018, 13:26 CEST

Report first disseminated: 23 April 2018, 06:30 CEST

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