Danish Mortgage-Bond Yields Rise at Auction on Europe Turmoil

Danish mortgage-bond yields have risen as turbulence on Europe’s deficit crisis is affecting the $97 billion auction, according to lenders selling the securities.

Realkredit Danmark A/S, the nation’s second-biggest lender, has sold 126.27 billion kroner ($22.5 billion) of the top-rated assets out of a planned 185.2 billion kroner, the Copenhagen- based company said.

The one-year krone-denominated security yielded 1.59 percent today compared with 1.42 percent on Nov. 26 and 1.78 percent at last year’s auction. Three-year yields were at 2.21 percent versus 2.10 percent a week ago and 2.81 percent last year, while five-year rates were at 2.86 percent versus 2.70 percent a week ago and 3.34 percent last year, the lender said in an e-mail.

“This reflects the current economic climate in Europe more than the lack of demand for these bonds,” Jens Kristian Kimper, an analyst at Realkredit Danmark, said by phone. “It’s a general adjustment to the international interest rates rather than investors showing lack of interest for this auction. Demand is in line with what we had expected so far.”

The European Central Bank acted to ease “acute” tensions in financial markets yesterday with President Jean-Claude Trichet extending emergency liquidity measures and government bond purchases.

Third-Biggest Market

Denmark’s $490 billion mortgage-bond market, the third-largest after the U.S. and Germany, proved resilient during the global financial crisis, with prices rising 6.57 percent in 2008, 7.1 percent in 2009 and 4.6 percent this year, according to the Danske Bank Mortgage Bond-Market Index. The securities provide an alternative to European government debt, which has been battered by a crisis that forced euro members Greece and Ireland to resort to bailouts.

Investors based outside the Nordic nation will probably buy as much as 20 percent of the mortgage bonds on offer, an all-time high and up from 15 percent last year, according to Danske Bank A/S. The auctions in the adjustable-rate mortgage bonds started Nov. 25 and run until Dec. 13.

Denmark’s adjustable-rate loans are reset every year, with investors such as pension funds bidding for the mortgage securities. The prices they pay determine the rates lenders can charge. The benchmark lending rate in Denmark is 1.05 percent, compared with 1 percent for the European Central Bank and a range of zero and 0.25 percent for the Federal Reserve.

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