Danish Interest Rates

Source:http://www.nationalbanken.dk




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Denmark suspends bond issuance:

'Press Release by the Danish National Bank.'

"Upon the recommendation of Danmarks Nationalbank, the Ministry of Finance has decided to suspend the issuance of domestic and foreign bonds until further notice.

The large surplus on the government finances in 2014 implies that the sale of government bonds has been greater than the funding requirement. Given the foreign currency situation, it is no longer appropriate to reduce the issuance of government bonds over several years. The balance on the central government's account at Danmarks Nationalbank is more than sufficient to cover the financing requirement in 2015.

Danmarks Nationalbank has purchased foreign exchange in the market and reduced the monetary-policy interest rates. This has resulted in a widening of the negative spread between money market rates in Denmark and the euro area. The interest rate spreads for government bonds, however, have remained positive in the longer maturity segments.

Danmarks Nationalbank expects that stopping the issuance of government bonds will contribute to reducing the interest-rate spreads in the longer maturity segments and thereby limit the inflow of foreign exchange.

Enquiries can be directed to Karsten Biltoft on tel. +45 3363 6021."

Source:http://www.nationalbanken.dk/en/pressroom/Pages/2015/01/DNN201521749.aspx

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Denmark cuts rate yesterday to - 0. 5 %

reportedly suspends sovereign bond issuance?




Without any risk and responsibility...

Simmering Scandinavia?

Denmark

·         Lowered the benchmark deposit rate to a record minus 0.35 percent on 22nd January 2015.

·         That followed a 15 basis-point cut on Monday, 19th January 2015.  

·         "Denmark sold a record 50 billion kroner ($7.7 billion) from Jan. 15-20 to weaken the currency, Svenska Handelsbanken AB estimates.

·         That’s equivalent to more than 10 percent of foreign reserves as of the end of December.  "

Source(http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html)

Compare with the Forex position estimated below to know the enormity of intervention: 

"5 January 2015 Press Release  of the Danish National Bank

Foreign Exchange and Liquidity and Monthly Balance Sheet, December 2014

 ...

In December 2014 the foreign-exchange reserve increased by kr. 1.3 billion to kr. 446.8 billion. The increase reflects Danmarks Nationalbank's net sale of foreign exchange for kr. 0.8 billion, and the central government's net borrowing of foreign debt for kr. 2.1 billion... In December, Danmarks Nationalbank has not intervened in the foreign exchange market."

(http://www.nationalbanken.dk/en/pressroom/Documents/2015/01/DNN201521572.pdf)

Views expressed Without any risk or responsibility

The Danes cannot defend the peg; it has a dilemma .

Why the Danes could see another currency run...

Pegs attract raiders as they are anomalies in the market dynamics.

Interest rates in Denmark have continued to fall, to historical lows, and the low level of interest  have not triggered investment activity. The commodity prices grain, pigs and milk have adversely affected Denmark. .

There is thus going to be just about speculative financial activity.     

In a sudden reversal charge: there could be an  international hunt for Danish  crown; it would be overwhelming for this small nation. 

Danish  crown could rise and counter party euro prices might plummet. 

the trend may be intensified by sales orders in euro;

there could be some queues at the entry; 

there could be knock-on effect across asset classes in Europe.   

There could be direct losses in the global market due to these  price adjustments for Danish  financial assets.

Views expressed without any risk or responsibility.