Morning Report

13.06.2012

Spanish debt costs further up

Most stock markets rebounded from losses on Monday in yesterday's trading session. Bourses recovered in both the US, Europe and in Asia, but trading volumes have been reported as low. The Greek election on Sunday and FOMC meeting next week where some investors have been hoping for more QE are most likely market drivers this week. There were also signs of higher interest rates yesterday. The German Bund has increased by 18 basis points to 1.48 percent. The increase has probably been a guideline for movements in other euro zone country's government bond yields, where French, Italian and Spanish sovereign yields have risen in parallel with the German. In FX, the euro was slightly weaker against the British pound and the Scandinavian currencies, but is unchanged against the dollar. EURNOK is down 0.3 percent, while EURSEK is down 0.4 percent. Spanish ten-year bond yields rose yesterday to the highest levels in the euro's history, and thus over the previous peak level recorded last November. Intra-day the yield on the ten-year bond rose to a peak of 6.83 percent, while later falling to 6.73 percent. This was the 531 basis points over German bonds. The short-term borrowing costs, however, has moved in the opposite direction, with 1, 3 and 6 months maturities down by 67, 41 and 12 basis points respectively since Friday last week. There is still no doubt that the loan package Spain will receive from the EU within a short time has contributed to a reduction in demand for Spanish government bonds from private investors. This is most likely because private investors will have to move back in line in the event of a Spanish default if the loans are paid out by ESM. There are several unanswered questions about the Spanish package. First, it is not clear whether the money will come from the EFSF or ESM. Should it be the latter, Spain will probably have to wait a while before accessing the funds. ESM will enter into force as soon as member states representing 90 percent of the capital commitments have ratified the ESM-treatment. So far, all of the 17 euro zone countries have signed the agreement, while only France and Portugal have ratified it. According to the plan, ESM will take effect from 1 July. This means that 15 of the parliaments in the euro zone, including the German, must have ratified the agreement within 18 days. There is also some uncertainty about who will contribute with capital in the new emergency fund. According to the ESM Treaty all euro zone countries will have to contribute with a share of the total capital stock. This proportion is weighted by the various countries' GDP. For example, Germany will provide 27 percent, France with 20 percent, Italy with 18 percent and Spain with 12 percent. All countries, regardless of whether or not they are receivers of emergency loans, should in principle contribute with their predefined share. If, however, a country is unable to pay all or parts of its share, the board of the ESM is free to transfer this burden to the other euro zone countries. In other words: if Spain will receive money from the ESM, and Spain itself is unable to pay its share to the ESM, the financial burden on other countries will increase. This will not be well received in the other euro zone countries who already are struggling to reduce their public spending. There is also reason to question whether the loan package is large enough to provide a sufficient and necessary overhaul of the Spanish banking system. For less than nine months ago, the now former governor of the Bank of Spain, Miguel Angel Fernndez Ordez, said after a takeover of 3 banks with an injection of 5 billion euros, that "the process of recapitalization is complete." 8 months later Bankia turned up on government door with a capital need worth 19 billion euros. Developments since then are well known. It is therefore somewhat reassuring that it is not the same Spaniards that have consistently underestimated the capital need in the Spanish banks who will determine how much money the banking sector now will receive in fresh capital from the emergency loan. The calculations will be made by experts from the European Commission in consultation with other international experts. As we argued in yesterday's Morning Report the loan worth up to 100 billion seems big enough for the banks to get the help they need. Today's most important figures are US retail sales data. The "core" (retail sales adjusted for car sales) increased by 0.1 percent in April, and it is expected that sales were unchanged in May. In addition, we expect industrial output in the euro area in April, where it expected a decline of 1.0 percent from March to April. [email protected] Yesterday's key economic events (GMT) 07:30 Sweden CPI 08:30 UK Manufacturing production 11:30 US NFIB small enterprises Todays key economic events (GMT) 09:00 EMU Industrial production 12:30 USA Retail sales ex. cars As of May Apr May As of Apr May Unit y/y % m/m % index Unit m/m % m/m % Prior 1.3 0.9 94.5 Prior -0.3 0.1 Poll 1.0 0.0 Poll -1.0 0.2 Actual 1.0 -0.7 94.4 DNB

SEK & 3m STIBOR 9.3 9.1 8.9 8.7 3-May

2.20

2.00 23-May 12-Jun

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

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Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

56 13 27 20 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

Research Regional Sales (+47) Eirik Larsen 22 01 76 55

Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Magne stnor Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 57 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 77 22 01 77 36 22 01 78 15

Morning Report
13.06.2012

SPOT RATES AND FORECASTS

NOK TWI ra.

EUR vs GBP & CHF 1.20 1.20 1.20 0.82 0.81 0.80

1.20 0.79 3-May 23-May 12-Jun

FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK

Prior 79.56 1.251 0.804 1.201 7.515 8.844 7.433 6.008 7.554 0.851 9.357 7.073 8.895 1.178 11.012

Last 79.58 1.252 0.805 1.201 7.526 8.834 7.432 6.010 7.557 0.852 9.347 7.059 8.872 1.176 10.978

% 0.0% 0.1% 0.2% 0.0% 0.1% -0.1% 0.0% 0.0% 0.0% 0.2% -0.1% -0.2% -0.3% -0.1% -0.3%

In 1 m ...3 m 80 84 1.23 1.30 0.79 0.83 1.20 1.20 7.60 7.50 9.10 9.00 7.45 7.45 6.18 5.77 7.72 6.87 0.84 0.83 9.6 9.0 7.40 6.92 5.92 5.82 1.20 1.20 11.52 10.84

...6 m ...12 m 85 85 1.35 1.40 0.85 0.87 1.20 1.30 7.50 7.60 9.00 9.00 7.45 7.45 5.56 5.43 6.54 6.39 0.83 0.84 8.8 8.7 6.67 6.43 5.67 5.46 1.20 1.18 10.59 10.34

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 0.9965 1.0271 0.9597 20.48 5.9358 1.5554 7.7587 129.63 0.2806 2.7576 0.5579 0.7789 3.4550 1.2816 32.6930

% -0.03% 0.09% -0.05% -0.57% -0.12% -0.15% 0.00% -0.02% 0.00% -0.12% 0.05% 0.12% -0.06% 0.00% -1.02%

EURSEK & OMXS 9.3 9.1 8.9 8.7 3-May 550 500 450 400 350 23-May 12-Jun
OMXS ra. EURSEK

1m 3m 6m 12m 3y 5y 7y 10y

NIBOR Prior 2.00 2.34 2.66 2.86 2.86 3.09 3.26 3.44

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 1.98 1.89 1.89 0.33 2.36 2.14 2.14 0.58 2.68 2.40 2.40 0.89 2.86 2.53 2.52 1.05 2.87 1.94 1.96 1.02 3.12 2.09 2.14 1.38 3.29 2.23 2.28 1.66 3.47 2.36 2.44 1.94

Last 0.33 0.58 0.89 1.05 1.00 1.35 1.64 1.93

USD LIBOR Prior Last 0.24 0.24 0.47 0.47 0.74 0.74 0.91 0.91 0.69 0.68 1.03 1.04 1.40 1.42 1.84 1.82

Gov. Bonds, 10y 2.00 1.75 1.50 1.25 1.00

3.00 2.50 2.00 1.50

3-May 23-May 12-Jun

10y 10y yield vs bund

NORWAY Prior Last 117.6 98.05 2.14 2.20 0.72 0.70

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 118.35 117.71 102.997 102.29 100.78125 1.50 1.57 1.41 1.50 1.66 0.09 0.06 0.25

Last 100.73 1.68 0.17

13.5 13.0 12.5

JPY and DowJones

81 79 77 75

12.0 3-May

23-May 12-Jun
USDJPY ra. DowJones, 1000

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y s wap 3m stibor 10y swap 3m euribor 10y swap 2.50 3.50 2.10 2.75 0.65 2.50 2.45 3.75 2.05 2.75 0.65 2.75 2.75 4.25 2.15 3.00 0.65 3.25
% - 0.29 0.08 - 0.03 - 0.4 Last 97.4 97.1 1603.5

US 3m libor 10y s wap 0.50 2.50 0.50 2.50 0.50 3.00

USD and gold 1.35 1720 1670 1.30 1620 1.25 1570 1520 1.20 3-May 23-May 12-J un
EURUSD ra. Gold

MISCELLANEOUS FRA NOK 3m Prior chg TWI Today JUN 2.36 2.36 0.00 NOK 94.01 SEP 2.37 2.37 0.00 SEK 117.50 DEC 2.39 2.38 0.01 EUR 99.87 MAR 2.41 2.40 0.01 USD 82.36 FRA SEK 3m Prior chg GBP 83.10 JUN 2.16 2.16 0.00 Comm. Today SEP 1.98 1.96 0.02 Brent spot 97.4 DEC 1.81 1.80 0.00 Brent 1m 97.4 MAR 1.77 1.74 0.03 Spot gold 0.0 Sources to all tables and graphics: Reuters and DNB Markets

Stock ex. Today Dow Jones 12,573.8 Nasdaq 2,843.1 FTSE100 5,473.7 Eurostoxx50 2,143.4 Dax 6,161.2 Nikkei225 8,587.8 Oslo 387.33 Stockholm 467.62 Copenhagen 564.80

Morning Report
13.06.2012
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