Different investor groups
It will be interesting to see whether interest in RIKB11 will prove greater on Friday than it was two weeks ago, when all bids for this series were rejected, while bids totalling ISK 8.3 billion (bn) were accepted for RIKB25. RIKB11 is admittedly the midget of the Treasury notes series, with outstanding stock of only some ISK 9bn, excluding loaned securities. RIKB25, on the other hand, has grown rapidly since its launch last summer and currently totals around ISK 65bn if loaned securities are excluded.

As we have previously pointed out, the auction of these two series attracts two main types of Treasury notes investors. The majority of the RIKB25 series is held by pension funds and other domestic institutional investors, while non-residents own the greatest share of RIKB11 notes. Friday's outcome should, in our estimation, give an indication as to whether interest of non-resident investors in RIKB11 is on the rise once more, or whether they will focus on the Treasury bills' auction Thursday next week.

Treasury note yields dropping
Recent yield developments of both series should serve as a fairly favourable basis for Friday's auction. Following the unexpected CPI drop, and subsequent Central Bank rate cut, last week, yields on Treasury notes have fallen considerably. At time of writing (10:00 am) the bid yield on RIKB11 was 7.34%, or equivalent to a 24bp drop since the beginning of last week. During this same period, the yield on RIKB25 has slid by 20bp to 7.87%. Yields on most Treasury notes series jumped sharply following the President's refusal to sign Icesave legislation at the beginning of January, but have since fallen substantially to a level similar to that of mid-December.

Fewer foreign visitors in January

The travel industry has clearly expanded strongly in Iceland in recent years. A record number of visitors entered the country last year, which is the more noteworthy considering the general global contraction in tourist traffic. Iceland was one of very few European countries which have not witnessed a sizeable drop in foreign visitors. A total of 566,000 visitors from abroad came to Iceland in 2009, compared with 562,000 in 2008. During this international downturn, the country's travel services have benefited from the low ISK exchange rate.  Statistics also indicate that travellers to Iceland in 2009 spent more than previously on restauration and leisure pursuits.

Icelanders travelling abroad increase in number
In January the number of Icelanders travelling abroad increased by 7.4% YoY, the third month in a row with an increase over the previous year. The corresponding YoY increase in November was 15.5% and 3.4% in December. This was the first YoY increase since June 2008; for 2009 as a whole foreign travel by Icelanders was down 37% YoY. It appears that the downturn in foreign travel by Icelanders has bottomed out and the numbers travelling abroad will increase YoY in 2010. Similar trends are visible in the results of Gallup's quarterly surveys of upcoming major expenditure, one component of which is foreseeable foreign travel. This index was 116.1 in December, its highest level since prior to the banks' collapse. Almost half of respondents said they were fairly likely or very likely to travel abroad within the next 12 months, while around 1/3 regarded this as very unlikely or fairly unlikely.

Little YoY change in overnight stays
Overnight stays in hotels last December were just over 5% fewer YoY, primarily due to a decrease in accommodations purchased by foreign travellers of 7% YoY. Conversely, nights of accommodation purchased by Icelanders rose 2%, according to figures for 2009 published by Statistics Iceland (SI) this morning. This is only the third month in 2009 when overnight stays by Icelanders did not decrease, as for the year as a whole they were down by 10% YoY. On the other hand, overnight stays by foreign visitors rose by over 2% YoY, again a rare event in 2009 in Europe. The total number of overnight stays in 2009 was practically unchanged from the previous year.

In 2009 as a whole, the Directorate of Labour received notices of 54 collective redundancies, involving a total of 1,789 persons, or around 150 persons on average each month. The greatest share of them (around 42%) had worked in construction or financial services (18%). Almost all of the collective redundancies announced last year have now come into effect.

Next week the Directorate of Labour will publish figures on January unemployment, which is expected to increase somewhat MoM, both due to seasonality and underlying economic developments. Registered unemployment in December was 8.2%, a MoM increase of 0.2 percentage points. At the beginning of this year, the Directorate of Labour forecast January unemployment of 8.6-9.1%. A total of 113 persons lost their jobs in collective redundancies in January.