Denmark Steps Up Prefunding to Cut Risk as Euro Crisis Persists

Denmark’s central bank said three quarters of the state’s borrowing need for this year have been met as it starts selling bonds to meet its 2013 requirement in a bid to cut funding risks amid persistent market turbulence.

About 75 billion kroner ($13.4 billion) in bonds will be sold this year, the central bank said today in its annual report on government debt and borrowing. This year’s financing need is 28 billion kroner, after the bank sold 124 billion kroner in 2011. The bank has so far sold 20 billion kroner, mostly in 10- and 30-year bonds, this year.

Denmark has served as a haven for investors fleeing the euro area’s debt crisis, keeping yields at record lows even as the Nordic country struggles with the fallout of a burst housing bubble and a regional banking crisis. Denmark has paid less than Germany to borrow for 10 years since Nov. 23, as investors turn away from the euro region. Denmark is one of only 12 nations ranked AAA at the three major ratings companies.

To keep investors committed, Denmark needs to rein in government spending, Governor Nils Bernstein said in today’s statement.

“This crisis in the European sovereign debt markets has made it clear that lender perception of a country’s creditworthiness can change quickly,” Bernstein said. “It is essential to maintain investor confidence, which is a condition for low yields on Danish government securities.”

Denmark’s debt will be 44.6 percent of gross domestic product this year, compared with an average of 90.4 percent in the euro area, the European Commission said in November.

Still, the commission said Feb. 14 it will review Denmark’s economy because of high private sector debt in its first annual Alert Mechanism Report. Denmark is among 12 countries the commission said it will review under new rules on economic governance in the 27-nation bloc.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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