Bridging Swedish and EMU/French inflation

1
Bridging Swedish and EMU/French inflation

• Vincent Chaigneau
• SG - Head of Interest Rate FX Strategy

2
Swedish and French CPIs
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
3
The influence of housing
Impact of each category on the spread
Weight of each CPI category
4
that implies a strong correlation between the
spread and 3-month yields
Correlation between the Swedish/French ex-tobacco
CPI spread and Swedish 3-month yields 0.63
5
Swedish and EMU CPIs
Correlation between the EMU ex-tobacco HICP and
the Swedish CPI 0.64
Correlation between the EMU HICP and the Swedish
CPI 0.84
Period 01/97 01/07
Period 04/89 01/07
6
Inflation linked OATs attractive for buy-and-hold
investors 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).

7
Total return OATi 2013 vs. SGBi 2015
Unhedged return, monthly
Currency-hedged return, monthly
Correlation 0.96 (since March 2003)
Correlation 0.97 (since March 2003)
8
Total 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)
9
Total return OATei 2032 vs. SGBi 2028
Unhedged return, monthly
Currency-hedged return, monthly
Correlation 0.98 (since November 2002)
Correlation 0.99 (since November 2002)
10
OATei vs. SGBi real-yield dynamics
Real yields moving hand in hand
11
Comparison in breakeven space
Trends in breakeven space are not similar gt
opportunities for relative value strategies
12
Innovation in Government Securities Market
Inflation LinkedUltra Long Dated BondsIndices

• 1400/1530 - Panel 4

• Sébastien BOITREAUD, Deputy Chief Executive,
  AgenceFrance Trésor
• Bo LUNDGREN, Director General, Riksgäldskontoret
• Vincent CHAIGNEAU, Head of Strategy Research,
  Société Générale CIB
• Philippe RAKOTOVAO, Chief Executive Officer,
  EuroMTS
• Stéphane SALAS, Head of Inflation Trading,
  SociétéGénérale CIB

13

• Stockholm, Thursday, March 29, 2007

Paris, Gateway to Euro Capital Markets