Friday 19 January 2018

Denmark burns bondholders, shuns euro -- and markets love it

Roisin Burke

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

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business