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Danish Mortgage Bonds Gain on LTRO Demand: Copenhagen Mover

Danish mortgage bonds gained in Copenhagen trading ahead of an anticipated rise in demand for the securities from banks tapping three-year loans from the central bank.

Bid yields on non-callable mortgage debt maturing in one to three years fell, with Nykredit’s 2 percent bond due Oct. 1, 2013, and Realkredit Danmark’s 2 percent note maturing January 1, 2014, falling to their lowest in almost two weeks, data available on Bloomberg showed.

Danish banks may borrow as much as 100 billion kroner ($17 billion) from the central bank when it opens the lending facility for the second and last time on Sept. 28. The program, originally intended to help banks avoid a liquidity squeeze, may also be used for commercial purposes, Governor Nils Bernstein said before the loans were first made available in March. His comments opened the door for carry trades.

Banks tapping the three-year facility will probably use the proceeds to buy short-term mortgage bonds of similar maturities, said Jan Oestergaard, senior analyst at Danske Bank A/S in Copenhagen. The loans are offered against collateral at the central bank’s lending rate, which was cut to 0.2 percent in July.

Nykredit’s 2013 bond yielded 0.439 percent at 10:45 a.m. local time, according to data available on Bloomberg. That was the lowest rate since Sept. 10, when it yielded 0.422 percent. Realkredit Danmark’s bond yielded 0.454 percent, compared with 0.439 percent on Sept. 10.

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