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Bridging Swedish and EMU/French inflation

Bridging Swedish and EMU/French inflation. Vincent Chaigneau SG - Head of Interest Rate & FX Strategy. 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.

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Bridging Swedish and EMU/French inflation

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  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 Weight of each CPI category Impact of each category on the spread

  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 => opportunities for relative value strategies

  12. Innovation in Government Securities Market: Inflation LinkedUltra Long Dated BondsIndices • 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 14:00/15:30 - Panel 4

  13. Stockholm, Thursday, March 29, 2007 Paris, Gateway to Euro Capital Markets

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