Germany Loses Allure as Biggest Danish Fund Slams Financial Tax

Denmark’s biggest pension fund said plans by 11 European nations including Germany to introduce a financial transactions tax will make debt sold by the region’s largest economy less appealing.

ATP, which oversees $140 billion, has limited its government bond portfolio to Danish and German debt and in 2011 renegotiated contracts to avoid having to accept French bonds as collateral for funding. Europe’s plan for a financial levy means Danish bonds will become the most attractive, said Anders Svennesen, deputy chief investment officer at Hilleroed, Denmark-based ATP.

“A financial transactions tax could potentially make Danish bonds a good, cheaper proxy to bonds in Germany,” he said in a March 22 phone interview. The levy “will seriously hurt liquidity and make it much more costly to trade even German government bonds. Not only will the tax apply when buying or selling the underlying assets, but hedging the currency exposure along with it will also trigger a tax payment.”

The European Union on Feb. 14 unveiled its proposal for a 0.1 percent tax for stock and bond trades and 0.01 percent on derivatives trades with ties to participating countries. The measure exempts primary offerings of government bonds. The EU estimates the move could raise 30 billion euros ($40 billion) to 35 billion euros a year. To become law, the proposal has to be approved by the countries that agree to participate, which comprise 11 nations including Germany, Spain and France.

Spreads Widen

Denmark has chosen not to join. The country, which has pegged the krone to the common currency, emerged last year as haven from the region’s debt crisis as it enjoys a stable exchange rate against the euro without being burdened by bailout costs. The AAA rated nation has a public debt load that’s less than half the euro area average.

ATP, which had a return of 9.9 percent last year, held 430 billion kroner ($74 billion) in government bonds, according to its 2012 annual report. That portfolio was split 50-50 between German and Danish government bonds, according to Svennesen.

“For non-FTT compliant investors looking to buy European exposure Danish assets will become relatively more attractive,” said Svennesen.

The Nordic country’s 10-year note yields about 20 basis points more than their German equivalent, compared with as much as 31 basis points less in November last year, according to Bloomberg generic yields.

Denmark’s deposit rate, which was cut to an unprecedented minus 0.2 percent in July, remains below zero after the central bank raised rates by 0.1 percentage point in January. The benchmark lending rate is 0.3 percent, or 0.45 percentage point lower than the European Central Bank’s main rate.

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