With Positive Yields Starting at 30 Years, Danes Plan a New Bond
(Bloomberg) -- Investors in Denmark are in store for a rare treat: a government bond with a positive yield.
To be sure, it takes a 30-year maturity before Danish yields crawl above zero. And that’s what Denmark’s debt office will now introduce.
The yield will be “positive but very low,” Jan Storup Nielsen, chief analyst at Nordea Markets in Copenhagen office, said by phone.
All Danish government bonds have traded at yields below zero for much of the year. The central bank first imposed a negative benchmark rate in 2012, providing an anchor for the country’s entire fixed-income market.
Nielsen says the debt office probably tailored the bond to target Denmark’s $680 billion pension industry, which has resorted to riskier assets to generate returns.
It’s the first time in over a decade that Denmark will issue a 30-year bond. The debt office, which has yet to set a coupon, says it expects to issue as much as 10 billion kroner ($1.5 billion) in 2020.
ATP, Denmark’s biggest pension fund, said the new bond meets a need for long-term, krone-denominated investments to help meet pension obligations.
“The new 30-year government bond is a good fit for ATP’s need for long Danish hedging assets,” Jan Ritter, head of hedging and treasury at the fund, said by email.
One worry for investors is whether the debt office will issue enough to create a liquid market. Denmark’s government just doesn’t need to issue a lot of debt, thanks to a healthy economy and restrained government spending.
The debt office has pledged to sell 105 billion kroner in bonds and T-bills next year, which is more money than the government needs. That’s just 87 billion kroner.
“The government doesn’t have much of a financing need and there are many interests that the debt office needs to serve when it comes to debt products,” Nielsen said. “It will be a challenge for the debt office to have a satisfactory level of liquidity in all of the bonds that are on offer.”
One answer may come from Denmark’s green ambitions. The government wants to cut emissions by 70% from 1990 levels by 2030. To help it do so, it plans to create a 25 billion-krone green fund. The debt office and finance ministry already are working on ways to introduce green bonds, although they probably won’t be ready for 2020.
“The government’s green ambitions will be very expensive to finance,” Nielsen said. “And that’s where the bond market could come in.”
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