Denmark burns bondholders, shuns euro -- and markets love it
Despite leaving bondholders twisting in the wind, Denmark's newest bond has less than zero per cent yields -- because markets view it as such a super-safe bet.
The Danish central bank auctioned a new bond yesterday and the investors piled in. In contrast, bondholder-appeasing Ireland faces a Herculean struggle to return to the markets at all this year.
Denmark allowed two of its banks -- Amagerbanken and Fjordbank Mors, which collapsed leaving the state on the hook for about €2bn between them -- to fail, burning senior bondholders in the process.
Ireland was prevented by the ECB from giving haircuts, with €1.25bn worth of Anglo debt paid out to unsecured, unguaranteed senior bondholders in February.
That said, the two bondholder-burning banks were worth less than 1 per cent of the Danish banking sector.
Danish 10-year bonds have an even lower yield than German bonds at just 1.2 per cent, and a recent 18-month Danish bond maturing in November 2013 has a yield of below -2 per cent.
Global investors are so sure of Denmark's economy that they were willing to buy this latest inflation-linked bond at a loss to keep their money safe.
"If inflation unfolds as expected these bonds will have a negative yield of 0.4 per cent," said Owen Callan, a senior dealer at Danske Bank.
"So you're losing 0.4 per cent per year over the 11 years after inflation. But people are willing to take a small real loss for safety's sake.
For the same reason, the Danish krone has soared to a five-month high against the euro.
Sunday Indo Business