The yield on Denmark’s two-year government note rose, resulting in the widest spread relative to German bunds in four months, as central bank measures in the U.S. and Europe ease demand for haven assets.
The yield on Denmark’s 2 percent note due November 2014 rose to 0.129 percent at 10:39 a.m. local time, the highest since May 8. The spread, or difference in yield, versus similar-maturity German bunds widened to five basis points, from three basis points yesterday. The spread was negative at the beginning of the week. Denmark’s 10-year yield rose seven basis points to 1.427 percent.
European Central Bank President Mario Draghi last week left euro-zone rates at record lows while pledging unlimited bond purchases to restore calm to the region’s debt markets. U.S. Federal Reserve Chairman Ben Bernanke yesterday vowed to buy bonds until the world’s largest economy recovers. The measures spurred demand for riskier assets amid speculation the global economy may be catapulted out of its turmoil.
“With Draghi’s measures, the European debt crisis is in a less acute state,” Tore Stramer, an economist at Copenhagen-based Nykredit A/S, said today by phone. “This doesn’t mean Denmark’s economy has become less attractive, and the safe-haven situation has disappeared overnight, but it has diminished a bit.”
AAA rated Denmark had enjoyed increased demand for its bonds this year, with two-year yields dropping below zero at the end of June, as investors gave up returns in the hope of protecting their principal. Denmark’s appeal lay in its current account surplus and a government debt ratio that’s half the euro-zone average.
Denmark’s central bank, which defends the krone’s peg to the euro, in July cut its key lending rate to a record-low 0.2 percent and the rate on certificates of deposits to minus 0.2 percent to counter the capital influx. The bank has since signaled pressure on the krone is abating.
On Sept. 4, the Copenhagen-based Nationalbanken said it didn’t intervene in the foreign currency market in August and that its foreign currency reserves were unchanged from the month earlier at a record-high 514.4 billion kroner ($89.9 billion).
“With less pressure on the krone and steps being made toward a euro-zone solution, we think the Danish central bank will normalize interest rates soon,” Stramer said. He predicted the bank will increase its key lending rate to 0.3 percent within three months. “But it all depends on the ECB and the euro-zone: we have seen many times now that it’s one step forward, then two steps back.”