Denmark will sell 75 billion kroner ($13 billion) in bonds next year and target longer maturities as the nation takes advantage of a north-south divide in Europe’s debt markets that’s sent Danish borrowing costs to record lows.
The debt office in Copenhagen also plans to sell 30 billion kroner in Treasury bills, and targets as much as 2 billion euros ($2.6 billion) in foreign borrowing, it said today. The office will sell maturities as long as 30 years to help “maintain a low refinancing risk,” it said.
Denmark’s AAA credit rating and a government debt load that’s less than half the euro zone’s average have attracted investors seeking refuge from markets tainted by the crisis. Danish government bond auctions this year resulted in the lowest borrowing rates on record as Europe’s crisis spawns a two-tier bond market that’s prompting the debt office in Copenhagen to test longer maturities.
“With the present level of rates, we have tended to issue more in the longer end as it reduces our refinancing risk and our interest rate sensitivity,” Ove Sten Jensen, head of the government debt management department at the Danish central bank, said by phone yesterday. “We have been very dependent on the development in the euro area debt crisis.”
Demand for Denmark’s bonds has continued even as the economy contracts. The central bank estimates gross domestic product will shrink 0.4 percent this year, compared with a September estimate for 0.3 percent, it said today. Output will expand 1.3 percent in 2013, less than the 1.6 percent previously predicted.
The budget deficit will be 3.9 percent of GDP this year, and improve to 2.8 percent in 2013 and 2014, the bank estimates.
The yield on Denmark’s 3 percent note due November 2021 eased one basis point to 1.048 percent as of 9:40 a.m. local time.
Denmark has struggled to emerge from a housing bubble that burst in 2008, wiping out more than a dozen banks in the years that followed. House prices will on average decline 3.8 percent this year, before growing 2 percent in 2013, the central bank said today.
Denmark’s 10-year bonds yield about 28 basis points less than similar-maturity German bunds, while investors pay the Nordic country to hold its two-year debt. The debt office sold 4.5 percent bonds maturing in 2039 at a yield of 2 percent this week, versus 2.13 percent in October, it said Dec. 11.
The yield on Denmark’s 1.5 percent bond due 2023 fell to 1.3 percent in a Dec. 11 auction, the lowest since the debt department began selling the bond this year.
“There has been a flight to quality, at certain times, a very big flight to quality,” Jensen said. “The average rates from the auctions are historically low.”
Economy Minister Margrethe Vestager said this week the government will proceed with budget cuts even as the central bank predicts the economy will contract, to avoid breaching European Union budget restrictions.
The market value of outstanding Danish central government securities has climbed 12 percent since hitting a 2012 low in March, as Europe’s efforts to resolve the debt crisis looked set to unravel. The value rose to 850.3 billion kroner in October from 755.9 billion kroner in March, according to central bank data.
“We’ve had very broad demand, and that’s been the case for most of the year,” Jensen said.