Denmark’s decision to take advantage of record-low yields last year and build up liquidity has provided the government with adequate buffers to withstand a rise in borrowing costs, central bank GovernorLars Rohde said.
“The state has used the past few years to build up a considerable liquidity buffer and has covered a large part of its financing need by issuing long-term bonds,” Rohde said in a statement today. “That means the state’s interest payments aren’t particularly sensitive to rising yields.”
Denmark’s AAA rated government bonds were the world’s worst-performing debt class in January as investors sold out of the safest assets amid signs euro-zone policy makers are succeeding in stemming the region’s debt crisis. The developments spurred a return in risk appetite, sending yields on haven assets higher.
The yield on Denmark’s benchmark 10-year bond rose to 1.83 percent this month, its highest since it was first sold in September. Last year, during the bleakest hours of the debt crisis, Denmark’s 10-year yields sank below 1 percent. Demand for haven assets in 2012 triggered a capital influx into krone- securities that forced the central bank to cut rates below zero to defend the krone’s peg to the euro.
“Demand for Danish government bonds was extraordinarily high, and interest rates were historically low,” Rohde said. “The crisis has shown the importance of maintaining a low level of public debt and healthy public finances,” Rohde said.
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