The scenario of a fourth hike to 2.75 percent in the key interest rate sometime in 2027 has begun to take shape in market pricing. But the probability of this is low, at 16 percent, right now, according to a report from major bank SEB.
Panic-like movements
However, the probability of three interest rate hikes this year is significantly higher: 93 percent, according to the report.
Amanda Sundström, fixed income strategist at SEB, warns that pricing is currently characterized by great uncertainty and that the market's positioning is excessive.
When there are these types of panic-like movements, there tend to be very big swings, she says.
But the market is worried that it will be like it was in 2022. Then central banks were too slow to react in many countries. Inflation took off very quickly and many were probably burned by that period, she adds.
The strong movement in the fixed income market is also affected by the fact that many regular players – such as established banks and funds – are withdrawing from trading, which increases the impact on how speculative and machine-driven players act.
They are often very fast. And these days they have such great financial muscle that they actually matter, says Sundström.
Interest rates on variable-rate mortgages are normally directly affected by adjustments to the policy rate, both upwards and downwards.
Could cost 30,000
If the interest rate on a mortgage of three million kronor were to be increased by one percentage point, the cost of the mortgage would increase by 30,000 kronor per year or 2,500 kronor per month, if the effects of the interest tax deduction are ignored.
The market is significantly more “hawkish” in its forecast than the Swedish Central Bank. In the so-called interest-rate path that the Swedish Central Bank presented last week, the main scenario was an interest-rate increase until the end of 2027, which is also the main scenario of major bank SEB.
Both SEB and the Swedish Central Bank are still highlighting the possibility that it may be necessary to lower the interest rate.
A month ago, before the US and Israel's bombing campaign against Iran began on February 28, market participants were counting on a 50 percent probability that there would be a cut in the key interest rate this year.
