What role is the Swedish krona fit to play in institutional
The stocky a nickname derived from the countrys
capital, Stockholm used to be one of the ultimate bets
on global growth, perking up whenever global equity markets did
so because of its high exposure to international trade.
Swedens exports total 50 percent of gross domestic
product a much larger share than that of several larger
European countries such as France or Italy.
The currencys reliably positive correlation with
equities and other risk assets, however, has recently begun to
fade. The Dow Jones Industrial Average put in an extremely
strong performance in September, for example, but the Swedish
krona eased down slightly.
If the stocky is no longer a global risk play, what is its
In the past the stocky has always had a high beta to
global growth, says Daniel Green, currency strategist and
vice -president at J.P. Morgan Asset Management in London.
When the global economy was strong, the Swedish krona did
pretty well. However, Green adds, whats
changed for the krona now is that theres been, to some
degree, a safe-haven flow going into Sweden
reducing the beta to growth.
The stockys recent safe-haven status was
confirmed in May, when the U.S. and other stock markets
plunged on global growth fears but Swedens currency
dipped only slightly.
Green credits Swedens safe-haven behavior partly to
favorable sovereign debt dynamics. The countrys gross
debt, at 49.2 percent of gross domestic product, is under half
the Organization for Economic Co-operation average of 99.2
percent. The bonds are viewed as very creditworthy,
Swedens longstanding fiscal prudence gives
it room for discretionary stimulus to support the economy
if the outlook turns out to be weaker than expected by the
authorities, the OECD declared in its economic survey of
Sweden, published Monday. This suggests that Sweden is light
years away from the debt trap of the peripheral euro zone
countries, which lack the elbow room to stabilize their
economies, and hence their tax receipts, through fiscal
Could this safe-haven identity be threatened, however, by
further cuts in interest rates? On Tuesday Swedens
Riksbank trimmed its benchmark rate by 25 basis points to 1
percent, blaming a clear slowdown in the Swedish
economy on the weak developments in the euro
area. Future rate reductions could reduce the appeal of
the stocky by shaving yields on Swedish government bonds. The
yield on the benchmark 10-year was 1.54 percent at the end of
Tuesdays European trading, 38 basis points below its gilt
equivalent, but 15 basis points above bunds.