Swedish krona and bonds cheer Moody's upgrade By Jennifer Hughes in London Published: April 5 2002 11:32 | Last Updated: April 5 2002 11:45
The Swedish krona and sovereign bonds gained on Friday following an upgrade by Moody's Investors Services, the credit ratings agency, and an upward revision to the government's estimated budget surplus.
Moody's raised its long-term rating on Sweden's foreign currency debt to Aaa, its highest rating, from Aa1.
"The financial health of the government, banking system, households, and corporates has been more than fully restored following the crisis of the early 1990s, and these improvements were consolidated with greater economic diversification, international openness, and private sector dynamism," said the agency in its report.
Rival ratings agency Standard & Poor's currently rates Sweden AA+ with a positive outlook, indicating it may upgrade that rating.
The krona gained after the report by Moody's also said Sweden would "clearly qualify on every measure" to join the eurozone. The krona has risen recently on belief that Swedes would vote for joining the euro in a referendum expected next spring.
Analysts say the government would like to see the krona at between SKr8.5 and SKr8.7 against the single currency before entry into the European Monetary Union. The krona rose to SKr9.0275 on Friday, from SKr9.07 on Thursday.
Swedish assets also received a boost from an upward revision to the projected budget surplus for 2002.
The Swedish National Debt office upped its surplus forecast to SKr20bn ($1.95bn) from SKr10bn and said the revision would prompt a postponement of of a planned increase in debt issuance to SKr3bn per auction from the current SKr2bn.
Analysts said a postponement could boost demand for Swedish bonds.
"The news was taken well by the market and we still recommend going long on the krona," said Guillaume Salomon, bond analyst at UBS Warburg. Mr Salomon said he expected the krona to rise to SKr8.7 in the next four months. He also recommended buying shorter-dated bonds, warning too many rate rises were already priced into the yield curve.
Last month, Sweden's Riksbank became the first G10 bank to raise interest rates this year when it upped its key rate by quarter point to 4 per cent.
Two-year bonds reversed early gains to stand 0.016 lower at 99.829, pushing the yield up 1 basis point to 5.090 per cent.
But the spread - a measure of risk premium - between the benchmark 10-year bond and its German equivalent narrowed to 48 basis points from 52 basis points at Thursday's close.
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