Denmark Pledges Bond Liquidity Even as Borrowing Need Drops

Denmark won’t cut its bond sales next year even after the government reduced its borrowing need, as the debt office pledges to maintain liquidity levels.

Denmark plans to issue 75 billion kroner ($13.8 billion) in bonds and 30 billion kroner in Treasury bills, it said yesterday. In the second quarter, the office will open a new 10-year on-the-run bond maturing in November 2025, it said.

“The strategy is to issue the main part of the issuances in the 10-year nominal segment,” the office said in a statement. It had targeted bond sales of 75 billion kroner for 2013, and sold 79.2 billion kroner.

Debt sold by Denmark’s stable AAA-rated government delivered investors a 3.2 percent loss this year as the hunt for yield replaced a flight to safety. The central bank’s efforts to defend the krone’s peg to the euro forced it to cut its deposit rate below zero in July 2012, and the rate has remained negative ever since.

The Finance Ministry said Dec. 11 it will borrow 112 billion kroner in 2014, of which 75 percent will be in kroner. In August, the government foresaw a 130 billion-krone borrowing goal, based on a domestic requirement of 102 billion kroner.

Investor Interests

“In the interest of investors and the continuity of the government debt policy, it is preferable that the issuance of government bonds and T-bills does not change significantly from one year to another,” the office said.

Denmark’s creditworthiness reflects “robust fiscal and wealth indicators, a diversified economy and pro-active economic policy making,” Moody’s Investors Service said in a note late yesterday. “Given the stable outlook, Moody’s does not currently anticipate any downward rating pressure.”

Europe’s safest debt markets have delivered investors the worst returns this year. Bonds sold by Denmark, Sweden and Norway all lost money in 2013, while Greek debt handed its holders the biggest gain, at 42 percent, according to data compiled by Bloomberg.

Danske Bank A/S, Denmark’s biggest lender, is advising clients to steer clear of the nation’s long-term government bonds as the debt office raises supply and drives up yields. Instead, investors should turn to shorter-dated debt, Danske said earlier this month.

Mortgage Confusion

Short-term government notes will also benefit from confusion surrounding the fate of similar-maturity mortgage bonds, Danske said. The Danish government said last month it expects the European Banking Authority to urge the European Commission not to give covered bonds the highest liquidity status, dealing a blow to Denmark’s $530 billion mortgage market.

“We expect that mortgage bonds will get the top liquidity stamp, but there is the risk there’ll be a lot of political noise from the European Union,” Danske said. “That will benefit short government bonds.”

Danish debt due in one to three years has lost investors 0.4 percent, compared with a 7 percent loss on bonds due in 10 years of more, according to data compiled by Bloomberg.

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