Yields on Danish non-callable mortgage bonds climbed to their highest in more than two months in Copenhagen trading after the central bank raised its benchmark interest rates to defend the krone’s peg to the euro.
The yield on Nykredit A/S’s 2 percent bond maturing Oct. 2016 rose to 1.052 percent, its highest since Nov. 2, at 10:38 a.m. local time. The yield on Realkredit Danmark A/S’s 2 percent note maturing April 2016 climbed to 0.92 percent, also the highest since Nov. 2.
The Danish central bank raised its benchmark interest rates yesterday for the first time since July 2011 as investor appetite for krone assets faded, weakening the currency against the euro. Investor demand for Denmark’s AAA rated mortgage bonds sent yields to record lows last year. Mortgage banks have urged borrowers to lock in rates by switching from loans that are refinanced yearly to longer-term maturities.
“There’s much to suggest that rates will increase in the future,” Lise Bergmann, a housing economist at Nordea Bank AB, said by phone. “Our concern is that, with so many one-year loans, the question is whether they fit the risk profile. Borrowers have to be well padded. They have to be able to afford rate increases.”
Yields on bonds used to finance loans with rates that change every three and five years probably will increase by about 0.1 percent and 0.2 percent respectively in the coming three months on the secondary market, Bergmann said.