long remaining maturity. how expensive it will be to fund this portfolio will therefore depend on the development of the repo rate for a long time to come. according to the current assessments made both by ourselves and others, it is more likely that the bonds that we have purchased in recent months will lead to losses rather than profits for the riksbank. for example, the yield on ten - year government bonds is now 0. 2 per cent. the riksbank does not make forecasts for the repo rate for more than three years in the future. even within this limited time horizon, interest rate developments are very uncertain, but let us in any case assume that the repo rate develops in line with the forecast. and let us assume that the repo rate then continues to rise slowly towards 4 per cent ( see chart 5 ). 14 the average interest rate level up until the bond matures in 2026 will then be 1. 2 per cent. paying on average 1. 2 per cent in interest and receiving on average 0. 2 per cent in interest represents a loss of 1 per cent a year. overall, this would be about 10 per cent up until the bond matures. this loss can be seen in chart 5 as the difference between the repo rate, i. e. the funding cost, and the forward curve that follows from the pricing of the bonds. this difference increases from about 0. 3 percentage points on short - term maturities to about 2 percentage points on the ten - year horizon, and is hence on average 1 per cent. the example shows that the interest rate risk and the possible loss are particularly large when we purchase bonds with long maturities. but ten - year bonds are not, as i have said, representative of the bonds purchased by the riksbank. a more representative bond has a maturity of five years. for a five - year bond purchased today, the loss will be between 3 and 4 per cent of the purchase sum if the interest rate develops as in this example. this is of a similar magnitude to the calculations based on the estimated term premium. 12 this forecast is based on the national institute of economic research ’ s interest rate forecasts. the low interest rates have also led to an increase in the market value of the foreign exchange reserve, which has contributed significantly to an improvement in the riksbank ’ s reported profit. this improvement is however almost entirely an accounting illusion that will be counterbalanced by lower profit in the period

the money market participants in prospera ’ s survey thought at the time that the repo rate would be brought back into positive territory towards the end of 2016 and then continue to increase. one can say that the riksbank purchased government bonds that gave a return of approximately zero but that were expected to be funded according to the repo rate forecast. the chart shows that the riksbank therefore expected to make a loss, as the funding costs were expected to be higher than the yield. 11 chart 4. actual and expected interest rate developments per cent repo rate survey mpr february 2015 mpr october 2016 - 1 - 1 note. survey responses show the mean value for the repo - rate expectations of money market participants in february 2015. “ mpr ” refers to the riksbank ’ s forecast for the repo rate in its monetary policy reports. sources : statistics sweden and tns sifo prospera but chart 4 also shows that the repo rate has so far turned out to be much lower than the interest rate forecasts. the bonds have therefore risen in value and the funding of the bond purchases seems to become cheaper than expected, something which, at least in the short term, has led to higher profits than expected for the riksbank. this is 11 an alternative measure of the future repo rate is provided by the market ’ s pricing of certain derivatives. this pricing suggested that the repo rate would increase more slowly than in the riksbank ’ s forecast, but the bond purchases would realise losses also according to these market - based expectations. 6 reflected in, for example, the forecast for the riksbank ’ s dividend - qualifying profit in 2015 and 2016. 12 at the end of 2014, a total loss of just over sek 10 billion was expected for those two years. 13 in march 2015, when bond purchases had begun on a small scale, the expected loss had risen to almost sek 14 billion. the latest forecast, from october this year, has the benefit of hindsight and indicates that the outcome will instead be a profit of almost sek 13 billion. losses likely in the period ahead the fact that the riksbank ’ s bond purchases have so far been profitable does not mean that this will always be the case. for example, the ever - lower interest rates have made bond purchases after the spring of 2015 increasingly costly. the riksbank has now purchased bonds for about sek 275 billion and several bonds have a