After two months of an increasingly volatile market and an October with the most negative performance since 2008, there is a demand for alternative investments to generate a return beyond the stock market. This analysis will further describe an approach to earn this return. Sweden is an archetypical open economy, and its export-oriented companies are doing well. There is no need to chase the arbitrary 2% inflation target blindly. The Central Bank Of Sweden (The Riksbank) has communicated a possible interest rate hike, either in December or in February, but there is still uncertainty regarding the rate’s development. According to the implied probability, a clear majority (78) % of the investors are optimistic and expect an increase in February. Only 7 % believe in a hike in December. The prospect for the future is now more or less included in the market price. Through this, a potential strategy was created as an opportunity to gain on the incorrect market valuation. This analysis is based on several macro events and predicts that the interest rate will remain unchanged. The “already included” rate increase must be corrected, and so the bond yield should fall, the bond price increase. The ultimate execution strategy is to buy a call-option of a futures contract with the Swedish 2-year bond as the underlying asset. The profit would be the difference in the purchasing price and the selling price of the bond.
Analysts: Ofelia Aspemyr and Julia Hänström