Bloomberg News

Nordic Havens Pass Post-Crisis Tests, Merrill’s Jooste Says

February 01, 2012

(Updates with bond spreads in sixth paragraph.)

Feb. 1 (Bloomberg) -- The Nordic region has cemented its haven status for investors as a wider European economic revival looks to be years away, said Johannes Jooste, a strategist at Bank of America Corp.’s Merrill Lynch Wealth Management.

“Nordic countries offer debt dynamics that are certainly way more favorable than anything else in Europe, with the exception of Germany,” Jooste said yesterday in an interview in Helsinki. “Factors driving the safe-haven status are fairly well entrenched, especially the low ratios of government debt.”

The region has emerged as a haven for investors seeking to flee turmoil in the euro area as leaders struggle to contain a debt crisis in its third year. Ten-year bond yields in Sweden and Denmark have fallen to below those of Germany, while Norway neared parity this month. Finland, the only Nordic euro member, has the third-lowest borrowing costs in the single currency bloc after Germany and the Netherlands.

Finland is one of only four sovereigns in Europe’s currency bloc that still carries a top credit grade at the three major ratings companies. Standard & Poor’s on Jan. 13 removed France and Austria from the euro area’s AAA club.

Sweden, Denmark and Norway are also rated AAA. The three countries in the European Union, Sweden, Denmark and Finland, will post debt to gross domestic product ranging from 34.6 percent to 51.8 percent this year, compared with an EU average of 84.9 percent, the European Commission said in November. Norway, the world’s seventh-largest oil exporter and second- largest gas exporter, has no net debt.

Yield Spreads

The widest Nordic yield spread versus German bunds on the 10-year benchmark note was for Norway, yielding about 58 basis points above German bunds at 8:21 a.m. in Helsinki. The lowest spread was for Swedish 10-year notes, nine basis points below the German equivalent.

The commission estimates economic growth of 0.5 percent for the euro area this year, compared with an expansion of 1.4 percent for all three Nordic EU members.

The Nordics “might escape the worst of the recession,” said Jooste, who helps manage $1.5 trillion in assets globally. The growth needed for a European rebound isn’t “a phenomenon we will see in this year or next,” he said.

This week’s euro leader summit in Brussels, the 16th in the two years since the Greek debt emergency provoked a Europe-wide drama, delivered only “baby steps” as opposed to deciding “something concrete, today,” Jooste said.

European leaders endorsed an agreement to accelerate the setup of a permanent 500 billion-euro ($659 bill on) rescue fund and backed a deficit-control treaty.

While the Norwegian and Swedish currencies are now “a bit” overvalued, any weakening would first require a debt resolution in the euro area, Jooste said. “Safe-haven assets will continue to perform reasonably well, including Nordic currencies and possibly gold.”

--Editors: Jonas Bergman, Tasneem Brogger.

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net


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