Denmark Close to Opening Bond Taps as $16 Billion Issuance Seen

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Denmark won’t be able to keep its bond issuance suspended much longer and is set to resume auctions this quarter, according to Nordea, Scandinavia’s biggest bank.

The debt office will probably need to sell 100 billion kroner ($15.5 billion) in bonds next year, Jan Stoerup Nielsen, senior analyst at Nordea in Copenhagen, said by phone.

Denmark suspended its bond auctions at the end of January as part of a program designed to deter speculators from hoarding AAA-rated krone assets and undermining the nation’s euro peg. But as liquidity dries up and Denmark’s borrowing need grows, the debt office will need to return to markets this quarter, according to Nordea.

After seven months without issuance, the office will “need to be very active with roadshows, especially for foreign investors,” Nielsen said. “There will presumably be a lot of meetings with investors. The risk of having been away from the market for so long is that foreign investors forget about the Danish bond market or that they become concerned about a lack of liquidity.”

Denmark’s government on Monday said it will need to borrow 14 percent more in 2016 as it predicted a wider budget deficit and slower economic growth, in part due to the global market rout.

Budget Deficit

The need for krone-denominated financing will grow to 144 billion kroner in 2016, while including foreign-currency debt issuance, the government plans to borrow 167 billion kroner next year.

“The higher financing need for 2016 makes it more likely that issuance could be re-started earlier than previously expected,” Arne Lohmann Rasmussen, head of Danske Bank’s fixed income research, said in a note. “We might get an update from the central bank as early as this week.”

The budget deficit was revised to 2.7 percent of GDP this year, more than twice the 1.3 percent previously estimated. The gap will widen to 2.8 percent next year, the Finance Ministry said on Monday.

Lars Mayland Nielsen, head of debt office in Copenhagen, declined to comment on issuance plans. Before issuance was suspended, the office had targeted 75 billion kroner in bond sales for the year.

“If the first auctions at the end of 2015 go well, I think a target of about 100 billion kroner is realistic, based on the financing need,” Nielsen said. “The debt office may also choose not to make the target an official figure, for fear they may disappoint the market by not reaching it.”

The length of the European Central Bank’s quantitative easing program “will play a part here,” he said.

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