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Denmark – World's largest Covered Bond market increasingly in foreign hands News

Saturday, September 2nd, 2017 | Economy

Foreign investors now hold around a quarter of the Danish market, corresponding to 700 billion kroner (94 billion euros), as Nykredit indicates with reference to central bank data from July. In the last twelve months the market volume, which is in foreign hands according to Nykredit, Denmark's largest mortgage bank, rose by more than six percent
"The main reason for the higher demand for Danish mortgage bonds is the search for yield," said Jeppe Borre, senior economist at Nykredit in Copenhagen, "especially when it comes to secure bonds rated AAA."
Foreigners are focused on fixed-rate bonds, and the industry has worked hard to expand this segment to reduce refinancing risks. Borre estimates that over the past twelve months alone the proportion of fixed-rate mortgage paper has increased by more than 70 billion krones in foreign markets, while the market itself has grown by only 50 billion kronor. Foreigners hold about 28 percent of the bonds behind the fixed-rate mortgages, compared to 22 percent a year ago, according to Borre.
Even in a climate of record low interest rates (short-term Danish mortgages have negative interest rates, and auctions this month delivered new all-time lows), there is still room that investors can make a profit, Borre said. Thirty-year bonds have a fixed interest rate of 2.0 to 2.5 percent. "This is attractive from a global perspective," Borre said. "Especially when they are as liquid and safe as Danish mortgages."


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