Swedish Krona Is The New Defensive As German Default Swaps Plunge

The Swedish krona’s day in the sun may finally be at hand, as confidence in the Eurozone continues to crumble.

Credit default swaps indicate that Swedish government debt is now less likely to default than old European defensives like German bonds:


Sweden’s currency strengthened more than all the other 156 tracked by Bloomberg except Brazil’s real with February’s 5.5 per cent gain against the euro, the krona’s best month since January 1999. The biggest traders predict it will appreciate at least 10 per cent in 2010 as the economy grows almost twice as fast as Europe’s and the Riksbank raises interest rates by a percentage point, four times more than the European Central Bank.

While the government maintains a cradle-to-grave welfare system, Prime Minister Fredrik Reinfeldt’s drive to sell state assets and cut taxes has provided a haven for investors rattled by warnings that Greece, Spain and Portugal will be overwhelmed by budget deficits. It’s cheaper to protect Swedish bonds against default than German bunds for the first time since 2008.

Markets are more comfortable with Swedish bonds given that the nation is outside of the Eurozone and has only half the budget deficit vs. GDP of Eurozone nations, plus a strong trade surplus to boot. There have been calls for the krona to be a safe haven in the past, expect them to intensify.

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