1

Bridging Swedish and EMU/French Bridging Swedish and EMU/French inflationinflation

Vincent Chaigneau

SG - Head of Interest Rate & FX Strategy

Swedish and French CPIsSwedish and French CPIs

-800

-600

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0

200

400

600

800

1000

-4

-20

24

68

1012

1416

18

Spread SD CPI FR CPI

bp y/y,%

Correlation between the French ex-tobacco CPI and the Swedish CPI: 0.72

Correlation between the French and Swedish CPIs: 0.83

Period: 01/91 – 12/06 Period: 01/76 – 01/07

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91

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92

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93

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94

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96

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97

Jan-

98

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99

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00

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01

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14

Spread SD CPI FR CPI ex tobacco

bp y/y,%

The influence of housingThe influence of housing

Impact of each category on the spread Weight of each CPI category

Category SD CPI FR CPI SpreadFood 13.10% 15.03% -19.3Alcohol 3.90% 3.33% 5.7Clothing 5.80% 5.19% 6.1Housing 27.40% 13.67% 137.3Furnishing 5.70% 6.02% -3.2Health 2.90% 9.97% -70.7Transport 13.90% 16.51% -26.1Communication 3.50% 2.95% 5.5Recreation 12.40% 9.11% 32.9

Education 0.40% 0.24% 1.6Restauration 5.60% 6.62% -10.2Other 5.40% 1.14% -59.6

Category ValueFood 11.84%

Alcohol 6.33%Clothing 4.98%Housing 35.59%Furnish 1.95%Health 12.59%Transport 9.81%Communication 4.25%Recreation 4.35%Restaurant 4.00%Other 4.32%

……that implies a strong correlation between the spread that implies a strong correlation between the spread and 3-month yieldsand 3-month yields

Correlation between the Swedish/French ex-tobacco CPI spread and Swedish 3-month yields: 0.63

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Spread 3 mth yields

Swedish and EMU CPIsSwedish and EMU CPIs

Correlation between the EMU ex-tobacco HICP and the Swedish CPI: 0.64

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ary-97

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ary-98

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ary-99

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ary-00

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ary-01

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ary-02

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ary-03

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ary-04

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ary-05

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ary-06

Janu

ary-07

-1.5-1-0.500.511.522.533.54

Spread Total SD CPI EA CPI hors Tabac

bp y/y,%

Correlation between the EMU HICP and the Swedish CPI: 0.84

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9

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Spread Total SD CPI EA CPI

bp y/y,%

Period: 01/97 – 01/07 Period: 04/89 – 01/07

Inflation linked OATs attractive for buy-and-hold Inflation linked OATs attractive for buy-and-hold investors Swedish investorsinvestors Swedish investors

The outstandings of Swedish inflation linked bonds have been increasing too

Investors holding Swedish linkers for long term hedging purposes for example may look for instruments which exhibit the same trend in total return terms

Inflation linked OATs can be attractive from this point of view, given their high correlation with Swedish linkers (next slides).

0

50

100

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250

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Outstandings of inflation linked loans, SEK billion

Source: Swedish National Debt Office website

Total return: OATi 2013 vs. SGBi 2015Total return: OATi 2013 vs. SGBi 2015

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100

105

110

115

120

125

Mar-03 Mar-04 Mar-05 Mar-06 Mar-07

OATi 13 (hedged) SGBi 2015

Unhedged return, monthly Currency-hedged return, monthly

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105

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115

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125

Mar-03 Mar-04 Mar-05 Mar-06 Mar-07

OATi 13 (unhedged) SGBi 2015

Correlation = 0.96 (since March 2003) Correlation = 0.97 (since March 2003)

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110

125

140

155

170

185

Feb-02 May-03 Aug-04 Nov-05 Feb-07

OATi 29 (unhedged) SGBi 28

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125

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155

170

185

Feb-02 May-03 Aug-04 Nov-05 Feb-07

OATi 29 (hedged) SGBi 28

Total return: OATi 2029 vs. SGBi 2028Total return: OATi 2029 vs. SGBi 2028

Unhedged return, monthly Currency-hedged return, monthly

Correlation = 0.99 (since March 2003) Correlation = 0.99 (since March 2003)

Total return: OATei 2032 vs. SGBi 2028Total return: OATei 2032 vs. SGBi 2028

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170

Nov-02 Dec-03 Jan-05 Feb-06 Mar-07

SGBi 28 OATei 32 (unhedged)

Unhedged return, monthly Currency-hedged return, monthly

Correlation = 0.98 (since November 2002) Correlation = 0.99 (since November 2002)

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170

Nov-02 Dec-03 Jan-05 Feb-06 Mar-07

SGBi 28 OATei 32 (hedged)

OATei vs. SGBi real-yield dynamicsOATei vs. SGBi real-yield dynamics

Real yields moving hand in hand

1.3

1.8

2.3

2.8

3.3

3.8

Oct-02 Aug-03 Jun-04 Apr-05 Feb-06 Dec-06SGBi 28 OATei 32

%

Comparison in breakeven spaceComparison in breakeven space

145

162

179

196

213

230

Feb-05 Aug-05 Feb-06 Aug-06 Feb-07

BEIR SGBi 2015 BEIR OATei 2015

bp

Trends in breakeven space are not similar => opportunities for relative value strategies

145

162

179

196

213

230

Feb-05 Aug-05 Feb-06 Aug-06 Feb-07

BEIR SGBi 2015 BEIR OATi 2013

bp

12

Innovation in Government Securities Market: Innovation in Government Securities Market: Inflation LinkedInflation Linked

Ultra Long Dated BondsUltra Long Dated BondsIndicesIndices

Innovation in Government Securities Market: Innovation in Government Securities Market: Inflation LinkedInflation Linked

Ultra Long Dated BondsUltra Long Dated BondsIndicesIndices

Sébastien BOITREAUD, Sébastien BOITREAUD, Deputy Chief Executive,Deputy Chief Executive, AgenceFrance TrésorAgenceFrance Trésor

Bo LUNDGREN, Bo LUNDGREN, Director General,Director General, Riksgäldskontoret Riksgäldskontoret

Vincent CHAIGNEAU, Vincent CHAIGNEAU, Head of Strategy Research, Head of Strategy Research, Société Générale CIB Société Générale CIB

Philippe RAKOTOVAO, Philippe RAKOTOVAO, Chief Executive Officer,Chief Executive Officer, EuroMTS EuroMTS

Stéphane SALAS, Stéphane SALAS, Head of Inflation Trading,Head of Inflation Trading, SociétéGénérale CIBSociétéGénérale CIB

14:00/15:30 - Panel 4

13

Stockholm, Thursday, March 29, 2007Stockholm, Thursday, March 29, 2007

Paris, GatewayParis, Gatewayto Euro Capital Marketsto Euro Capital Markets