Residents cut back on hotel stays
On Tuesday, SI will publish figures on overnight stays in hotels in December 2009. Overnight stays in November were down by 7% YoY, due both to a drop of almost 9% in nights of accommodation purchased by foreign travellers that month and a drop of over 4% in accommodations purchased by Icelanders. During the first 11M of 2009, a slight drop in overnight hotel stays YoY resulted from a decrease in accommodation purchased by Icelanders of 10%, while stays of foreign travellers rose by 3% YoY.

Lowest ISK real exchange rate in 95 years
On Thursday, the Central Bank of Iceland (CBI) will publish the RER for January. In December, the RER rose slightly in terms of relative price levels, due to greater increases in consumer prices in Iceland than abroad and a slight ISK strengthening. Interestingly enough, the currency held steady in December despite major coupon dates on bonds held by non-residents and no intervention by the CBI on the FX market.  Nonetheless, the ISK real exchange rate in 2009 is clearly the lowest it has been in the past 95 years or so. In terms of relative prices, the RER was almost 29% below its average 1980-2008, and almost 37% lower in terms of relative wage costs.

External trade in January
SI's provisional figures on external goods trade in January will be released on Friday. Last year the surplus on trade in goods amounted to ISK 87.2 billion (bn), or ISK 15bn higher than indicated by provisional figures released in early January. This is by far the largest external goods trade surplus ever recorded in Iceland. In 2002, the last year when external trade was in surplus, thanks to a low RER and drop in domestic demand, the figure was just over ISK 13bn.

Auctions of Treasury notes
An auction of Treasury notes by Government Debt Management is scheduled for Friday. Two series were on offer in the last auction, RIKB11 and RIKB25. Demand for RIKB25 was strong, with bids received totalling ISK 10.2bn nominal value. Bids amounting to ISK 8.3bn were accepted with the yield 8.07%. This high interest in the longest Treasury notes series indicates that investors' appetite for longer non-indexed government paper has scarcely decreased despite higher uncertainty concerning short-term interest rates and economic developments.

Interest in RIKB11 was considerably less. Bids received totalled only ISK 4.3bn and all were rejected. This is the second auction in a row where sales of RIKB11 have not been concluded due to low demand. In our estimation the modest response suggests low interest on the part of non-resident investors in the auction. At the moment, they appear to prefer Treasury bills over shorter Treasury notes.