Denmark received bids for more than twice the amount offered in the country’s new 10-year bond as the debt office prepares to replace its existing benchmark note in that maturity.
The debt office in Copenhagen sold 5.03 billion kroner ($851 million) in its November 2023 note, which offers a 1.5 percent coupon. The yield at the auction, which attracted bids for 10.44 billion kroner, was 1.46 percent, the central bank said today.
Denmark will probably have issued 20 billion kroner in the new bond by November, allowing the 2023 note to replace the existing 10-year bond as the nation’s benchmark in that maturity in about two months, according to Danske Bank A/S (DANSKE), Denmark’s biggest lender and a primary dealer.
“They ought not to have any problems reaching 20 billion kroner by November,” Jens Peter Soerensen, Danske Bank chief bond analyst in Copenhagen, said by phone yesterday. “They have a luxury problem, as demand is still very strong.”
Denmark pays less than Germany to borrow over 10 years and has charged investors to hold its two-year debt through most of July and August. The government, which boasts a debt ratio that’s less than half the euro-zone average, estimates its borrowing need will slump 29 percent next year as the budget deficit narrows to 1.9 percent of gross domestic product.
“We need to have a decent size outstanding, big enough for it to be attractive to international investors, before it can become a benchmark,” Ove Sten Jensen, head of debt issuance at the central bank, said in an interview yesterday. “It’s also a question of the old benchmark having a time till expiration that harmonizes with its benchmark maturity.”
Jensen’s office will “reach out to the primary dealers and try to get a sense of what kind of timing they think would be appropriate for a shift between the two series,” he said.
The yield on Denmark’s existing 10-year benchmark bond -- the 3 percent note due November 2021 -- rose three basis points to 1.176 percent as of 10:26 a.m. local time. That’s 24 basis points less than similar-maturity German bunds. Two-year Danish debt yielded minus 0.129 percent, 10 basis points less than bunds.
Investors should sell short-term Danish bonds and instead buy the new 1.5 percent note due 2023, Danske said in a note last week.
“It’s better to buy the note now before it becomes a benchmark,” Soerensen said. “Because once the switch has been made, it will obviously be more expensive.”
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