Danish mortgage bond yields will be close to zero in refinancing auctions beginning this month as their AAA credit ratings draw investors intent on protecting principal, Nordea Bank AB (NDA)’s mortgage unit said.
The yield on Nordea Kredit bonds issued to refinance one- year adjustable loans will probably fall to 0.25 percent from 1.06 percent in October auctions, according to Lise Bergmann, an economist at Nordea Kredit. Yields on three- and five-year bonds will dip to 0.7 percent and 1.3 percent, from 1.6 percent and 2.1 percent, respectively.
“Our prognosis is close to what yields are now,” Bergmann said in an interview. “Danish mortgage bonds, with their AAA rating, appeal to many investors who are concerned about how things will development and who demand to have AAA rated investments. There are fewer AAA rated.”
Danish government and mortgage bond yields have plunged as the Nordic country’s credit ratings and economic strength draw investors willing to give up returns in a flight from Europe’s debt crisis. Denmark pays less than Germany to borrow for 10 years, and the yield on its two-year notes is below zero.
Mortgage yields, which set rates for borrowers, could follow, Bergmann said. While unlikely “one has to be careful in the current conditions never to say never,” she said.
Denmark’s 2 percent government note due November 2014 yielded minus 0.21 in Copenhagen trading at 2:53 p.m. local time. The yield on Nordea’s bullet bonds maturing October 2013 was 0.323. The security is rated AAA by the three major credit rating companies.
About 100,000 Danish homeowners will be refinancing their loans in the auctions, which continue into September, according to Nordea. Fewer than 0.5 percent of Nordea customers are refinancing adjustable-rate loans with fixed-rate mortgages, suggesting they feel “safe” rates will stay low, Nordea said.
To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at firstname.lastname@example.org
To contact the editor responsible for this story: Tasneem Brogger at email@example.com