On the development of the SEK exchange rates & bond yields in May 2024

We analyse the development of the Swedish krona (SEK) exchange rates and bond yields in May 2024. We do the analysis with support from a Power BI report that we have developed, which is available in our Portfolio. The source of all the data in the report is the Swedish central bank – the Riksbank.

May 2024 exchange rates overview

We start by filtering the report so that only data before the 1st of June 2024 is present in the report. We then go to the page below and expand the table so that the monthly development of the exchange rates is visible. We then click on May and consequently the page updates with May as a filter.

Zooming in on the chart with percentual change, it looks like the picture below. We see that SEK started the month relatively flat against all currencies except Norwegian krone (NOK) in the report. However around the 14th of May, the SEK started to strengthen against all currencies except NOK. At 15th May 2024, the policy rate was cut by 25 bps by the Riksbank. The SEK ended the month by strengthening against all currencies in the report except NOK. As we see in the table above, all changes were in the range from -5.0% to 1.7%.

From the table above, we see some notable changes to the SEK exchange rates in May 2024, for example:

• Strengthening against Chinese yuan (CNY) by 3.6%
• Strengthening against Japanese yen (JPY) by 5.0%
• Strengthening against US dollar (USD) by 3.6%
• Weakening against Norwegian krone (NOK) by 1.7%

2024 year-to-date overview

Zooming in on the table from the picture above, we can see the total development for 2024 year-to-date (YTD). In 2024, SEK has weakened against all currencies in the report except JPY and CHF.

Some notable changes to the SEK exchange rates in May 2024 YTD are:

• Weakening against CNY by 2.0%
• Weakening against Pound sterling (GBP) by 3.9%
• Weakening against EUR by 2.4%
• Weakening against USD by 3.4%
• Strengthening against JPY by 6.5%

Bond yields in May 2024

We also review the bond yields to explore possible reasons to the changes in the SEK exchange rates. From the picture below, we see that in May (the MTD value), all the SEK bond yields decreased. This is aligned with the cut in the policy rate in May 2024, which was discussed above. The trend in 2024 is clearly that the bond yields have increased, not only for SEK but also for other bonds like GBP and USD.

For example, the SEK 2 years yield decreased by 10 bps in May to 2.78%. So far in 2024, it has increased by 49 bps. Compared to 1 year ago, the 5 years yield is flat at just +4 bps, so it means the yield was decreasing in the end of 2023 but has now started to increase again in 2024.

With regards to the bond spreads, that is the difference between bonds with longer duration and bonds with shorter duration, there was some significant change in May, specifically for the 2s10s. The 5 years yield is close to the 10 years yield, so the 5s10s is close to 0%. However, the 2 years yield is higher than the 10 years yield, which is reflected by the 2s10 being at -0.34%. Typically, there is a premium for bonds with longer duration like the 10 years bond so the 2s10s would then be positive instead.

In May, the EUR and JPY 10 years yields increased by 12 bps respective 1 bps. The SEK 10 years yield actually decreased by 8 bps. Despite this, the SEK exchange rate strengthened by 2.2% against EUR and 5.0% against JPY.

Summary

In May, SEK strengthened against many large currencies like EUR, GBP and USD. It strengthened by 5.0% against JPY, 3.4% against USD and it weakened by 1.7% against NOK. In the time period of one month, this is a significant change, in particular the 5.0% strengthening against JPY. With regards to the overall development in 2024, SEK has weakened against many currencies. For example, SEK has weakened against USD by 3.4% and against GBP by 3.9%. Meanwhile, it has strengthened against JPY by 6.5% and by 3.0% against Swiss franc (CHF).

With regards to the SEK bond yields, they all decreased in May. This is in contrast to the overall development in 2024. For example, the 2 years yield decreased by 10 bps in May to reach 2.78% and so far in 2024 it has increased by 49 bps.

In May, the Riksbank cut the policy rate and it influenced the SEK bond yields which decreased at the same time as yields in many other currencies increased.